Using the data below, we are now going to use our supply/demand framework for us $ to model the movement in the euro per $ exchange rate between december 2007 (the very beginning of the great recession) and november 2008 (pretty much the height of the global financial crisis). note that the data is given in $ per euro and then converted into euro per dollar. for example, $ 1.2 per euro is converted by 1/1.2 = .833 meaning that $1 = .83 euro (this is the vertical axis on your graph, i. e., euro per $).
draw a supply and demand diagram like we did numerous times in the lectures labeling the vertical axis as euro per $, the horizontal axis with quantity of dollars, the initial supply and demand curves labeled with 12/07, label this initial intersection point as point a. now explain what happened to each curve and why between 12/07 and 11/08. label as point b with your supply and demand curves labeled accordingly (hint: the two obvious facts during this period is that the 1) us was in a deep recession and 2) we were at the height of the (global) financial crisis (in 11/08). assume all else is constant.
data:
12/1/2007 the dollar per euro exchange rate is $1.45, so the euro per dollar exchange rate is 1/1.45 = .69 euros per dollar.
11/1/2008 the dollar per euro exchange rate is $1.27, so the euro per dollar exchange rate is 1/1.27=.79 euros per dollar.