Section 11 Bilbo Baggins loved to have parties and give gifts. Since he came back from his adventures with Thorin Oakenshield and the dwarves with lots of gold, he could afford to import magical toys and other special presents from the foreign country of Dale where they are made. The Shire (where Bilbo lives) and Dale have different currencies. a) Draw the foreign exchange market for the Shire dollar. Be sure to show the equilibrium exchange rate and quantity traded. b) Real income in the Shire increases. Draw what happens in the exchange rate market. What happens to the exchange rate and quantity traded? (Remember both sides of market can be affected) c) The Shire’s interest rates fall compared to the rest of the world. Draw what happens in the exchange rate market. What happens to the exchange rate and quantity traded? (Remember both sides of market can be affected) d) The exchange rate for the Shire dollar is expected to rise in the future. Draw what happens in the exchange rate market. What happens to the exchange rate and quantity traded? (Remember both sides of market can be affected)