Refer to Figure 3 for the following question. Which of the following events cause the shifts in the supply and demand curves in the market for dollars against the British pound shown in the graph above? Figure 3 Exchange rate (£/S) £0.50 0.46 A) interest rates rise in England Show Transcribed Text Figure 3 Exchange rate (£/S) £0.50 0.46 S₁ S₂ OA) interest rates rise in England B) interest rates rise in Australia C) real income rises in Australia D) real income falls in England Quantity of dollars traded 0 C S₁ D₂ Quantity of dollars traded
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- 3. Toyota manufactures most of the vehicles it sells in the United Kingdom in Japan. The baseplatform for the Toyota Tundra truck line is X1,650,000. The spot rate of the Japanese yen againstthe British pound has recently moved from X197/E to X190/E. How does this change the price of theTundra to Toyota's British subsidiary in British pounds?You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible What is the effect on the foreign exchangemarket (the $ market)? 8. The exchange rate (the amount of foreigncurrency that a $ buys)?A. increaseB. decreaseC. remains unchanged 9. The U.S. dollar has?A. depreciatedB. appreciatedC. remained unchanged 10. The currency in the other country has?A. depreciatedB. appreciatedC. remained unchangedDepict two currency markets: the U.S. dollar and the Japanese Yen, setting up the two markets in initial equilibrium. Next to each supply curve and demand curve state who is on the supply curve in the market and who is on the demand curve in the market. Assume there is an increased preference among U.S. consumers for Japanese electronic goods because of a perceived superior quality. 1b. Make changes to the two currency markets reflecting this change. 1c. State which currency has appreciated with respect to the other currency.
- Suppose that Great Britain and the United States are trading partners. Assume that the initial exchange rate in Great Britain is £0.76= 1$. Now suppose that the opportunity cost of consumption in the United States begin to rise. Which of the following explain what is expected to happen in the British forex market? O The demand for British pounds will decrease, leading to a depreciation of the US dollar. O The supply of British pounds will increase, leading to an appreciation of the British pound. O The supply of American dollars will decrease, leading to a depreciation of the British pound. O The demand for American dollars will decrease, leading to an appreciation of the British pound. Please do fast ASAP fastYou have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. What is the effect on the foreign exchangemarket (the $ market)? 12. What impact will this have on imports?A. increaseB. decreaseC. remains unchanged 13. What impact does the change in the exchangerate have on aggregate demand?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchanged 14. What happens to the aggregate supply curve?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchangedExplain why you would be more or less willing to buygold under the following circumstances:a. Gold again becomes acceptable as a medium ofexchange.b. Prices in the gold market become more volatile.c. You expect inflation to rise, and gold prices tend tomove with the aggregate price level.d. You expect interest rates to rise.
- Consider the following equations for a small open economy for both the goods and money markets. C = 30 + 0.8Yd; T = 10 + 0.2Y; G = 100; TR = 10; I = 40 – 10r; M = 20 + 0.14Y; X = 20. LP = 10 + 0.15Y; LT = 20 + 0.25Y – 5r; Ls = 10 – 5r; MS = 400; P= 4. Equilibrium income and interest will be:CASE STUDY 15-8 The Euro Exchange Rate Defies Forecasts The euro (the currency of 17 of the 27 member countries of the European Union or EU—see Case Study 14-2) was introduced on January 1, 1999, at the value of $1.17; however, defying almost all predictions (that it would appreciate to between $1.25 to $1.30 by the end of the year), it declined almost continuously to the low of $0.82 at the end of October 2000 (see Figure 15.8). The euro then appreciated to $0.95 at the beginning of 2001, only to fall again to below $0.85 at the beginning of July 2001, despite higher interest rates in the European Monetary Union (EMU) or Eurozone, the recession in the United States, and the terrorist attacks on the World Trade Center in New York and the Pentagon in September 2001—again defying most experts’ forecasts. Starting in February 2002, however, the euro appreciated almost continuously, reaching parity with the dollar in mid-2002, $1.36 at the end of 2004, the all-time…Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 100
- The Foreign Exchange MarketThe Jamaican dollar experienced a rapid depreciation in the exchange rate during 2020 due to thepandemic's impact on key sectors. The exchange rate in 2020 closed at J$142.65 to US$1.00,after opening the year at J$132.57, resulting in a 7.6 per cent depreciation. As at FridaySeptember 16, 2022, the exchange rate was at approximately $ JA 150 to US $1.QUESTIONGiven this rapid depreciation of the Jamaican dollar against the US dollar,should the government of Jamaica adopt a Fixed Exchange Rate regime ormaintain the current Floating Rate regime?Outline to answering the question Clear distinction between fixed exchange rate and floating exchange rate, Examples of countries that uses fixed exchange rate regime and those that uses floatingexchange rate regime and Arguments for and against floating exchange rateOn June 23, 2016, voters in the United Kingdom votedto leave the European Union. From June 16 to June 23,2016, the exchange rate between the British pound andthe U.S. dollar increased from 1.41 dollars per pound to1.48 dollars per pound. What can you say about marketexpectations regarding the result of the referendum?Question 4Use the money market and FX diagrams to answer the following questions about the relationshipbetween the British pound and the U.S. dollar. The exchange rate is in U.S. dollars per Britishpound, E$/pound. We want to consider how a change in the U.S. money supply affects interestrates and exchange rates. On all graphs, label the initial equilibrium point A.(a) Illustrate how a temporary increase in the U.S. money supply affects the money and FXmarkets. Label your short-run equilibrium point B and your long-run equilibrium point C.(b) Using your diagram from (a), state how each of the following variables changes in theshort run (increase/decrease/no change): U.S. interest rate, British interest rate, E$/pound,Ee$/pound, and the U.S. price level P.(c) Using your diagram from (a), state how each of the following variables changes in thelong run (increase/decrease/no change relative to their initial values at point A): U.S. interestrate, British interest rate, E$/pound, Ee$/pound,…