Question: Now that we've built up some intuition about exchange rates, let's apply the principles more thoroughly. In this question, we discuss the U.S.-China exchange rate. Officially, the Chinese government fixed this exchange rate for years at a time, but in this question, we treat it as a market rate that can change every day.
a. In the following figure, shift the appropriate curves to illustrate the effect of the following news story: Chinese factory sells poisonous dog food.
![2331_DPY.png](https://secure.tutorsglobe.com/CMSImages/2331_DPY.png)
b. Does this news story raise or lower the price of the yuan? Does this strengthen or weaken the Chinese currency? Does this strengthen or weaken the U.S. dollar?