The Case for Floating Exchange rates Figure 19-1: Effects of a Fall in Export Demand Exchange rate, E DD2 DD (a Floating exchange rate AA1 Output,Y Exchange rate, E DD DD1 (b )Fixed exchange rate AA AA2 Copyright C 2003 Pearson Education, Inc Output, y Slide 19-8Copyright © 2003 Pearson Education, Inc. Slide 19-8 AA1 DD1 Figure 19-1: Effects of a Fall in Export Demand AA2 DD2 AA1 DD2 DD1 E2 2 Y2 Y2 Output, Y Exchange rate, E (a) Floating exchange rate Output, Y Exchange rate, E (b) Fixed exchange rate Y1 E1 1 Y1 E1 1 Y3 3 The Case for Floating Exchange Rates