When the Federal Reserve decreases the interest rate, there is a lower demand for the USD, causing the USD to appreciate firms will find it easier increasing As a consequence, U.S. to export their goods and services, thus aggregate demand.
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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.c. Assume the recession in Braveland causes a decrease in the demand forMacroland dollars in the foreign exchange market. Braveland’s currency is the euro.i. Explain whether the euro will appreciate, depreciate, or remainunchanged against the dollarii. Draw a correctly labeled graph of the foreign exchange market fordollars and show the effect of the decrease in demand for dollars on theexchange rate for dollars. d. Macroland implements a combination of expansionary fiscal and monetary policies. What will be the effect of these policies on each of the following?i. Aggregate demand in Macrolandii. The price level in Macroland iii. Explain the effects of expansionary fiscal policies on interest rates inMacroland.iv. Explain the effects of expansionary monetary policies on interest rates in Macroland.Lecture: What Determines Fxchange Rstes? Question: Regarding exchange rate overshooting, what are the two side effects that intervene and affect the path of the exchange rate after the increase in the domestic money auppty? a. Sbick product peikes and tectining domentic interest rate: b. Deciling foreign interent ratea and sticay product prices. c. Sticky domestic interest rates and increming produat prices: d. Increasing dometic interet rates and sticky foreign inferes rates, e. Sticky faregn interat rates and dedingrg product prices:
- 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)? 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 unchangedWhat is happening to the U.S. real exchange rate ineach of the following situations? Explain.a. The U.S. nominal exchange rate is unchanged,but prices rise faster in the United States thanabroad.b. The U.S. nominal exchange rate is unchanged, butprices rise faster abroad than in the United States.c. The U.S. nominal exchange rate declines, andprices are unchanged in the United States andabroad.d. The U.S. nominal exchange rate declines, andprices rise faster abroad than in the United States.After the very high inflation years of the 1970s andearly 1980s, lenders demanded avery high-interest rate to offset inflation levelsand make their loans worthwhile. Then people's expectations will be the future decreasing nterest rate. Graph and explainthe effects of this decrease in expectations of interestrates on exchange rates..
- Give typing answer with explanation and conclusion Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. Initially, the supply curve for USD is 100 + eN bln dollars per week and the demand curve is 140 - eN bln dollars per week. There is a financial crisis in Mexico and the government fears that it may lead to capital outflows that would make the crisis even worse. They decide that if Mexican Peso depreciates by more than 20% the central bank will step in and fix the exchange rate. As the crisis unfolds the demand for the U.S. dollars increases to 142 - eN and the supply of dollars falls to 99 + eN. How should the central bank of Mexico react to this change?1. Illustrate through a graph the following and explain each graph:A. Use the foreign exchange market (Philippine pesos in the vertical axis, quantity of US dollars in thehorizontal axis, demand curve and supply curve of US dollars) to show the effect of the following onthe equilibrium exchange rate (one graph each of i and ii and assume other factors constant): i.) increase in foreign interest ratesii.) increased preference for Philippine products by foreigners. B. Illustrate using the AD-AS model how an increase in the exchange rate or depreciation of the peso willaffect real GDP and price level in the domestic economy (other factors constant).C. Use the loanable funds market and illustrate graphically how an increase in net capital outflow willaffect domestic interest rates and investment. Briefly explain your illustration.18. If more American tourists visit South Africa. The _____________________ of dollars increases and the dollarin the rand/dollar exchange rate _____________________.A Supply; depreciatesB Demand; depreciatesC Supply; appreciatesD Demand; appreciates
- When the dollar appreciates, U.S. Select one: O a. exports and imports increase. O b. exports decrease, while imports increase. C. exports increase. while imports decrease. O d. exports and imports decrease.What prompted the currency crises in Mexico in the mid-1990s andin many Asian economies at the end of the 1990s? What are theconsequences of the recent decision by China to let its currency, therenminbi, appreciate after it was fxed for many years relative to the dollar?For each of the following events/items, state whether the impact is positive(+), negative (-) or no impact (0).a) A Malaysian company has imported from Japan. The Yen appreciates against theRinggit.b) A Malaysian company has imported from Japan. What is the impact if the Ringgitappreciates against the Yen?c) A Malaysian company borrows in Euros from Deutsche Bank. The loan is repayablein six months. The Ringgit appreciates against the Euro.d) What happens if the loan in (c) above is repayable in one lump sum in five yearsfrom now and the Euro now appreciates against the Malaysian Ringgit?e) A Malaysian mutual fund invests in an Australian ETF (exchange traded fund). TheAustralian Dollar appreciates against the Malaysian Ringgit.
