Consider the United States and the countries it trades with the most (measured in trade volume): Canada, Mexico, China, and Japan. For simplicity, assume these are the only four countries with which the United States trades. Trade shares (trade weights) and U.S. nominal exchange rates for these four countries are as follows:Country (currency)Share of Trade$ per FX in 2015$ per FX in 2016Canada (dollar)36%0.82710.6892Mexico (peso)28%0.06830.0538China (yuan)20%0.16080.1522Japan (yen)16%0.00800.0086Compute the percentage change from 2015 to 2016 in the four U.S. bilateral exchange rates (defined as U.S. dollars per unit of foreign exchange, or FX) in the table provided.Use the trade shares as weights to compute the percentage change in the nominal effective exchange rate for the United States between 2015 and 2016 (in U.S. dollars per foreign currency basket).Based on your answer to (b), what happened to the value of the U.S. dollar against this basket between 2015 and 2016? How does this compare with the change in the value of the U.S. dollar relative to the Mexican peso? Explain your answer

Country (currency) Share of Trade $ per FX in 2015 $ per FX in 2016 Canada (dollar) 36% 0.8271…

Answered: Consider the United States and the…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Taking The Nation's Economic Pulse

Section: Chapter Questions

Problem 1CQ

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Consider the United States and the countries it trades with the most (measured in trade volume): Canada, Mexico, China, and Japan. For simplicity, assume these are the only four countries with which the United States trades. Trade shares (trade weights) and U.S. nominal exchange rates for these four countries are as follows:

Country (currency)	Share of Trade	$ per FX in 2015	$ per FX in 2016
Canada (dollar)	36%	0.8271	0.6892
Mexico (peso)	28%	0.0683	0.0538
China (yuan)	20%	0.1608	0.1522
Japan (yen)	16%	0.0080	0.0086

Compute the percentage change from 2015 to 2016 in the four U.S. bilateral exchange rates (defined as U.S. dollars per unit of foreign exchange, or FX) in the table provided.
Use the trade shares as weights to compute the percentage change in the nominal effective exchange rate for the United States between 2015 and 2016 (in U.S. dollars per foreign currency basket).
Based on your answer to (b), what happened to the value of the U.S. dollar against this basket between 2015 and 2016? How does this compare with the change in the value of the U.S. dollar relative to the Mexican peso? Explain your answer

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