If more American tourists visit South Africa

Economics Nov 28, 2020

If more American tourists visit South Africa. The_____________________ of dollars increases and the dollar

in the rand/dollar exchange rate_____________________ .

A Supply; depreciates

B Demand; depreciates

C Supply; appreciates

D Demand; appreciates

Expert Solution

When more American tourists visit South Africa, they bring dollars with themselves to exchange it for rand in South Africa. So gradually the supply of dollars increases in South Africa. Supply curve of dollar shifts right. Exchange rate is determined by demand and supply of foreign currency. Equilibrium dollar exchange rate falls from e^* to e_1^* . The dollar exchange rate as a result depreciates.

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