3. Suppose that Canada decides to peg its dollar (SC, or the loonie) to the U.S. dollar at an exchange rate of SC1= SUSI. a. What is likely to happen to U.S. GDP following the leftward shift of its IS curve? b. Will there be pressure for the Canadian dollar to change in value against the U.S. dollar as a result of the leftward shift of the U.S. IS curve?

3. Suppose that Canada decides to peg its dollar (SC, or the loonie) to the U.S. dollar at an exchange rate of SC1= SUSI. a. What is likely to happen to U.S. GDP following the leftward shift of its IS curve? b. Will there be pressure for the Canadian dollar to change in value against the U.S. dollar as a result of the leftward shift of the U.S. IS curve?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 6PA

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If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
Consider the bilateral exchange rate between Australia and New Zealand. Suppose $1 AUD buys $1.05 NZD, the Australian price level is $100 AUD and the New Zealand price level is $110 NZD. Which of the following is TRUE? a.The Australian dollar has more real purchasing power than the New Zealand dollar b.In the long run, the New Zealand dollar is likely to depreciate against the Australian dollar c.The real exchange rate is 0.90 d.The real exchange rate is 1.10
Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to the Swiss franc. Speculate as to how each would hurt the Swiss watchmaker
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Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (a) Assume real income increased in the United States. Explain how this increase in income in American GDP will affect the FOREX graph of the Yen b) Will each of the following increase, decrease, or stay the same as a result of the increase in the United States real income? (i) Japan’s net exports. Explain. (ii) Unemployment in Japan. Explain. (iii) Japan’s long-run aggregate supply (c) Assume instead household savings increased in the United States. What would happen on loanable funds market in the United States with the supply of loanable funds, and show the effect of the increase in household savings on the equilibrium real interest rate. (d) Based on the change in the equilibrium real interest rate identified in part (c), what will happen to financial capital flows to the United States? e) Based on…
4) Suppose that the long term interest rate is decreasing since there is anexpectation that the economy is delving into the recession. How that changemight affect the foreign exchange rate in the country? Discuss? (Use graphs)
16. Explain why net exports and the real exchange rate have an inverse relationship. Why do NXs decrease as exchange rates increase? Why do NXs increase as exchange rates decrease? Use graphs
1. Explain how each of the following will affect the relative values of the dollar and the French franc: a. Income growth higher in the United States than in France. b. Inflation higher in France than in the United States. c. A real interest rate higher in the United States than in France.
D4) FinanceImagine that the economy is at a point that is below both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is TRUE? The exchange rate will first increase to a point on the AA schedule. The exchange rate will first move to a point on the DD schedule. The output will directly decrease. The output will directly increase. The economy will stay at this level in the short run.
6. In the exchange rate model in Example 7.2, supposethe company continues to manufacture its product inthe United States, but now it sells its product in theUnited States, the United Kingdom, and possibly othercountries. The company can independently set its pricein each country where it sells. For example, the pricecould be $150 in the United States and £110 in theUnited Kingdom. You can assume that the demandfunction in each country is of the constant elasticityform, each with its own parameters. The question iswhether the company can use Solver independently ineach country to find the optimal price in this country.(You should be able to answer this question withoutactually running any Solver model(s), but you mightwant to experiment, just to verify your reasoning.)
The exchange rate is the price of one currency in terms of another currency. An exchange rate specifies how many units of one country's currency are needed to buy one unit of another country's currency. Suppose the following table forecasts exchange rate data for May 21, 2018, in terms of U.S. dollars per unit of foreign currency. Use the information in the table to answer the questions that follow. Foreign Currency Cost of One Unit of Foreign Currency (Dollars) Lithuanian litas (LTL) 0.3666 Canadian dollar (CAD) 0.8493 Euro (EUR) 1.3288 Mexican peso (MXN) 0.0889 United Kingdom pound (GBP) 1.8965 Suppose that on May 21, 2018, an ornamental bookcase handmade in the United Kingdom is priced at GBP 530. The approximate U.S. dollar price of the bookcase would be . If the exchange rate for the U.S. dollar–U.K. pound rises from $1.8965 to $2.2758 per U.K. pound, the U.S. dollar in value, or , relative to the U.K. pound.
10 Read the following paragraph and answer the question that follows. A number of factors have contributed to the performance of the South African economy. Firstly, the sizeable monetary injection into the local economy as a stimulus due to COVID economic pressures has given a boost to household disposable incomes over the course of 2021. The depreciation of the exchange rate in 2021 year also provided a boost to the domestic economy. Based on the information in the paragraph above, where is the South African economy in the economic cycle as per the figure above? a. contraction b. trough c. expansion d. peak