Q2:(36 marks)Suppose that the demand for Chinese cellphones from the U.S.increases,butChina’s net capital outflow doesn’t change.Answer this question using the open economymodel from the Chinese perspective.a)What happens to the demand for RMB in the foreign currency exchange market?(6 marks)b)What happens to the real exchange rate of RMB in the foreign-currency exchange market?Show your answer using a figure.(12 marks)c)What happens to Chinese net exports?Why?(6 marks)d)If Chinese are selling more cellphones,what must be true about Chinese imports and exportsof other items?(6 marks)e)Keeping in mind your answers to (a)through (c),do you think China runs an overall tradesurplus with the rest of the world because its cellphones are better made or because of itsnational saving and domestic investment?Explain.(6 marks)
