Title: The Impact of a US Recession on the Foreign Currency Market: A Graphical Analysis

The foreign currency market is a crucial arena where exchange rates between different currencies are determined. In this scenario, we will delve into how a recession in the United States could affect the market equilibrium exchange rate for the German Deutsche mark (DM) and the corresponding quantity of DM. To understand this, we need to analyze the factors that influence the supply and demand curves for foreign currencies.

Factors Shifting the Supply and Demand Curves for Foreign Currencies:

1. Changes in Economic Conditions: A recession in the United States would likely lead to decreased economic activity, lower consumer spending, and reduced business investment. This would result in lower demand for German goods and services, thereby decreasing the demand for the Deutsche mark. The demand curve for DM would shift leftward, indicating a decrease in demand.
2. Interest Rates: During a recession, central banks often implement expansionary monetary policies, such as lowering interest rates, to stimulate economic activity. In the United States, lower interest rates could make saving in US dollars less attractive compared to other currencies. This could lead to a decrease in demand for dollars and a subsequent increase in demand for other currencies like the Deutsche mark.
3. Inflation Rate: Recessions tend to be accompanied by lower inflation rates. If the US experiences deflation or lower inflation than Germany, the real value of the dollar may increase relative to the Deutsche mark, causing US goods to become relatively cheaper. This could increase demand for US goods in Germany, which might lead to an increase in demand for US dollars.
4. Relative Economic Performance: If Germany’s economy is relatively stronger than that of the US during the recession, international investors may view the Deutsche mark as a safer and more stable currency. This perception could increase demand for the Deutsche mark, shifting the demand curve to the right.
5. Trade Policies: If the US implements protectionist trade policies during the recession, it could lead to a decrease in imports and an increase in exports. This might result in a greater demand for dollars by foreign countries to purchase US goods, shifting the demand curve to the right.

Graphical Analysis:

To illustrate the impact of a US recession on the foreign currency market, we can use a standard supply and demand graph for foreign currencies. The vertical axis represents the dollar price of the Deutsche mark, and the horizontal axis represents the quantity of the Deutsche mark.

Graph Description:

1. Initial Equilibrium: Draw a point where the supply and demand curves intersect. This point represents the initial equilibrium exchange rate and quantity of Deutsche marks.

2. Decreased Demand for DM: Shift the demand curve to the left to depict the decrease in demand for Deutsche marks due to the recession in the US. The new equilibrium point will have a lower exchange rate and quantity of Deutsche marks.

3. Increased Demand for DM: Now, shift the demand curve to the right to illustrate a scenario where external factors, such as relative economic performance or trade policies, lead to an increased demand for Deutsche marks. This will result in a higher exchange rate and quantity of Deutsche marks.

In conclusion, a recession in the United States can impact the foreign currency market by influencing both the supply and demand for the Deutsche mark. Factors such as changes in economic conditions, interest rates, inflation rate, relative economic performance, and trade policies all contribute to shifts in the supply and demand curves. Through graphical analysis, we can visually understand how these factors interact to determine the equilibrium exchange rate and quantity of the Deutsche mark in the face of a US recession.