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1. Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. a. A fall in consumer confidence about the future induces consumers to spend less and save more. b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars. c. New regulations restricting the use of credit cards increase the demand for money.

1. Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. a. A fall in consumer confidence about the future induces consumers to spend less and save more. b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars. c. New regulations restricting the use of credit cards increase the demand for money.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter29: Exchange Rates And International Capital Flows
Section: Chapter Questions
Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...
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1. Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. a. A fall in consumer confidence about the future induces consumers to spend less and save more. b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars. c. New regulations restricting the use of credit cards increase the demand for money.
Transcribed Image Text:1. Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. a. A fall in consumer confidence about the future induces consumers to spend less and save more. b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars. c. New regulations restricting the use of credit cards increase the demand for money.
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