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The Initial Exchange Rate Between the U

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Essay

The initial exchange rate between the U.S. dollar and the Chinese yuan is $0.15/yuan in the yuan foreign exchange market when Americans decide to import more goods from China. What effect will this have on the yuan foreign exchange market? Show your answer graphically and explain in terms of the value of yuan and dollars.


Definitions:

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Framing Effect

The influence on decision making caused by the way information is presented, rather than the actual information itself.

Base-Rate Error

A cognitive bias where people misjudge the likelihood of an event by ignoring general prevalence.

Availability Heuristic

An intuitive thinking process that leverages readily available examples to evaluate a specific topic, concept, approach, or decision.

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