Give explanation steps and take like Which one of the following statements is INCORRECT?Select one:OA. If the domestic interest rate decreases from 6% to 4%, the nominal exchange rate wouldbe E = (1+0.04/1+0.06) x 0.20 = 0.19 and it appreciates.OB. If the domestic interest rate decreases from 6% to 4%, the nominal exchange rate wouldbe E = (1+0.04/1+0.06) x 0.20 = 0.19 and it depreciates.OC. The interest parity condition can be written as 0.20 = (1+0.06/1+0.06) x 0.20.OD. If the domestic interest rate decreases from 6% to 4%, It can be illustrated as follows:6%4%PRER1-50.19 R1-S0 20

This statement is incorrect because it states that the nominal exchange rate appreciates when the…

Answered: Which one of the following statements…

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 9PA

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Similar questions

Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?
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.
Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
(b) Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4. (i) What is the nominal exchange rate? Use the expression: ereal= enor*P / Pfor where ereal is real exchange rate, enor is nominal exchange rate, P is domestic price level and Pfor is foreign price level. (ii) Suppose the real exchange rate rises by 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change?
Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 16%. If the International Fisher Effect (IFE)holds, what would you forecast for the Swiss franc exchange rate with respect with the cedi be for a one-year period? Assume that the initial exchange rate is 5000cedis to a Swiss franc.
Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4. (i) What is the nominal exchange rate?Use the expression: ,where ereal is real exchange rate, enor is nominalexchange rate, P is domestic price level and Pfor, is foreign price level (ii) Suppose the real exchange rate rises by 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change?
Please show all work: Suppose the current $/B₤ exchange rate is $1.56/₤. The inflation rate in the U.S. is projected to be 4.6% for the year, while it is expected to be 3.2% in the U.K. Right now, a consumer can be the same car in the U.S. for $26,000 that costs ₤16,667 in England. What is the project cost of the car in the U.S. and U.K. by the end of the year? What change in the exchange rate is projected by PPP? Demonstrate that the two cars will cost the same at the end of the year if PPP holds.
If the Japanese price level rises by 5% relative to theprice level in the United States, what does the theoryof purchasing power parity predict will happen to thevalue of the Japanese yen in terms of dollars?
Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people who want to convert dollars to yuan are asking to convert $10 billion per day of dollars into yuan, while the people who are wanting to convert yuan into dollars are asking to convert 36 billion yuan into dollars. What will happen to the size of China’s official reserves of dollars? a. Increase. b. Decrease. c. Stay the same.
These are currency quotes found on a foreign market: GH 4.30/$, and GH 4.55/$. Calculate the percent appreciation or depreciation in each case
Problem 21-04 (algo) Suppose that the current Canadian dollar (CAD) to U.S. dollar exchange rate is $0.80 CAD = $1 US and that the U.S. dollar price of an Apple iPhone is $260. Instructions: In part a, enter your answer as a whole number. In part b, round your answer to 2 decimal places. a. What is the Canadian dollar price of an iPhone? $ CAD Next, suppose that the CAD to U.S. dollar exchange rate moves to $0.92 CAD = $1 US. b. What is the new Canadian dollar price of an iPhone? $ CAD c. Other things being equal, would you expect Canada to import more or fewer iPhones at the new exchange rate?
Suppose that the U.S. dollar-Chinese yuan exchange rate is fixed by the U.S. and Chinese governments. Assume also that labor is immobile between the United States and China due to high transportation costs. Which of the following situations is likely to occur if there is a simultaneous increase in the demand for U.S. goods and a decrease in the demand for Chinese goods? a) The Chinese unemployment rate will increase, and the country will undergo hard economic times for a sustained period. b) The U.S. unemployment rate will increase, and the country will undergo hard economic times for a sustained period. c) The Chinese unemployment rate will initially rise but then drop as the Chinese yuan depreciates against the U.S. dollar. d) The Chinese unemployment rate will initially rise but soon drop as unemployed Chinese move to the United States for employment.

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