In the situation described in the above two questions

6. In the situation described in the above two questions, given the projected trend in the yuan ’ s real
exchange rate, your company should definitely
a) increase its reliance on Chinese producers.

3
b) develop plans for possible diversification into alternative supply sources outside China. *
c) maintain its existing supply chain and not be concerned about China's real exchange rate.
d) develop plans to invest more in China and vertically integrate its supply sources in that
country.
Explanation:
The rising real exchange rate of yuan means that it will become increasingly costly to produce and
export out of China. So, your company should develop plans for possible diversification into
alternative supply sources outside China.
7. Your company (or yourself) has a sizable amount of money in the US that must be managed for
several years. You are in charge of forming a portfolio. Under current conditions and policies, you are
indifferent between a real estate fund that invests in commercial buildings in the US and another fund
that invests in the stocks of companies that produce tradable goods in US. So, you decide to divide
the company ’ s money into two equal parts and invest in both funds. Then, unexpectedly, the United
States Congress decides to reduce the public consumption expenditure on the domestic goods and
services on a long-term basis without any change in tax rates. Assume that US GDP level and GDP
growth are not affected by this policy change Also, assume that other policies and global economic
conditions remain unchanged. Which part of the portfolio is likely to do better as a result of this
policy?
*
Macroeconomics Module 6 Assignment
Short-Answer and Algebraic Questions: (The numbers in square brackets give the breakdown
of the points for various parts of each question. To receive full credit, please explain your
answers.)
1. This question is based on the article, " There is more than one explanation for the fall in sterling ,"
published by Financial Times on March 23, 2017. Click on title of the article to read it on FT.com
website. The article examines the link between the Brexit referendum in the UK and the pound. It
argues there are two channels through which Brexit may affect the pound ’ s real exchange rate.