Country Z exports $5 million of goods and services and imports $5 million of goods and services. It aiso has $10 million of foreign currenc- denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies. If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate depreciates by 1%? Select one: O a.itis unchanged O b. improves by $0.005 million O c. improves by $0.045 million O d. improves by $0.055 million e. worsens by $0.005 million
Country Z exports $5 million of goods and services and imports $5 million of goods and services. It aiso has $10 million of foreign currenc- denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies. If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate depreciates by 1%? Select one: O a.itis unchanged O b. improves by $0.005 million O c. improves by $0.045 million O d. improves by $0.055 million e. worsens by $0.005 million
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter23: The International Trade And Capital Flows
Section: Chapter Questions
Problem 44P: Imagine that the U.S. economy finds itself in the following situation: a government budget deficit...
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Transcribed Image Text:Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency
denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their
respective currencies.
If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate
depreciates by 1%?
Select one:
O a.itis unchanged
O b. improves by $0.005 million
O c. improves by $0.045 million
O d. improves by $0.055 million
e. worsens by $0.005 million
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