Tourism Boom to the US
The question
Assume the foreign exchange market for the US dollar is initially in equilibrium. A popular international sporting event is held in the United States, and a large wave of visitors from the fictional country of Marovia travel to the US to attend, spending heavily on hotels, meals, and admission tickets while there. Show the effect of this spending in the foreign exchange market for the US dollar, holding all else constant. Show the effect on the Foreign Exchange Market (USD) graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Tourism Boom to the US: the worked answer
On the Foreign Exchange Market (USD) graph, Demand for dollars (D$) shifts right.
Why Demand for dollars (D$) shifts right
To pay for US hotels, meals, and tickets, Marovian visitors must first exchange their own currency for US dollars. Foreigners acquiring dollars are the source of the demand for dollars in this market, so their extra spending raises the quantity of dollars demanded at every exchange rate and shifts the demand for dollars to the right. American spending on foreign goods and assets is unchanged, so the supply of dollars stays put.
What happens to the equilibrium
The dollar appreciates and the equilibrium quantity of dollars traded increases.
The mistake students make on this one
Many students shift the supply of dollars because the visitors are described as spending money inside the United States. Those visitors have to buy dollars with Marovian currency before they can spend anything, and anyone acquiring dollars belongs on the demand side of this graph.
On exam day
Treat inbound tourism as a US export of services: foreigners buying anything American, a good or a hotel night, shifts D$ right and appreciates the dollar.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when Demand for dollars (D$) shifts right and every other curve on the Foreign Exchange Market (USD) graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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