The paper "Expansionary Monetary Police Adopted by Chinese Government" is an outstanding example of a micro and macroeconomic assignment. As shown in the above diagram when the exchange rate is lowered, the supply curve shifts to the right (from S dollar to S dollar 2). This results in an increase in the amount of money in the market. Since the quantity shifts from Q1 to Q2. This is an indication that the observation is true hence the impact discussed above will be real. With an increased quantity of the amount of Chinese Yuan in the market, we will observe a decreased rate of exchange which goes hand in hand with the quantity of money that will be available in the exchange market. The above effects will be felt if the government of China puts in place those measures that are going to respond positively as explained in the above results.
However, if the conditions are not met it is possible that the results are contrary to what we have seen above. For all these to happen it is necessary that the law of demand and supply in the foreign market be maintained and its conditions to apply without having any other disturbance.
These will result in the weight of the Chinese foreign reserve be eroded making the value of the reserve be eroded hence making the weight of the US dollar be felt even further. To reverse the situation, then it will be necessary that the Chinese government will purchase the US dollar from the currency market. The situation will lead the supply of the Chinese Yuan to increase in the currency market hence making it depreciate. Another problem that may lead to the cause of the devaluation of the Chinese currency is ensuring that the debt that the country has is manageable so that it may not be required to the government to give out a lot of Yuan as a way of settling the debt.
This also will affect the strength of the Yuan in the foreign market exchange. The interest rate is an important factor that will determine the rate at which a given economy will grow. Interest rates are key when it comes to savings and investments that are made in a country.