# 4. Refer to the Economist article (you can find this on D2L under "Resources") titled "Dethroning...

###### Question:

4. Refer to the Economist article (you can find this on D2L under "Resources") titled "Dethroning the dollar: The search to finding an alternative to the dollar." a. Interpret the last sentence in the below paragraph using the model of exchange rate determination in chapter 14. (5 marks) "A world in which the dollar is tested from several sides will be unpredictable. In the longer term, more balance among global reserve currencies may make the global monetary system less vulnerable to shock. And the dollar's current pre- eminence is not an unalloyed good for America: it distorts the currency's value (upwards) and market interest rates (downwards)." b. Although the article states that the dollar is not currently under threat by the efforts of several countries to protect their interests, suppose that a concentrated effort to dump U.S dollars in foreign markets was successful. What would be the impact on the U.S interest rate and the U.S dollar? (5 marks)

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