Brief Principles of Macroeconomics - With MindTap
8th Edition
ISBN: 9781337379236
Author: Mankiw
Publisher: CENGAGE L
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Chapter 13, Problem 7PA
To determine
The exchange rate between United States and Mexico.
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Suppose that yesterday, the U.S. dollar-Japanese yen exchange rate was $1=¥0.553546. The price of one Japanese yen in terms of a U.S. dollar was ___ .
Suppose that today the U.S. dollar-Japanese yen exchange rate falls to $1=¥0.533585 for one dollar. This means that between yesterday and today, the U.S. dollar has ___ against the Japanese yen. The price of a Mexican peso in terms of the U.S. dollar is now ___ .
A can of Coke costs $0.75 in the U.S. and 12 pesos in Mexico:
What is the dollar-peso exchange rate if purchasing power parity holds
If a monetary expansion caused all prices in Mexico to double, so that the soda rose to 24 pesos, what would happen to the dollar-peso exchange rate
In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa.
Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world.
Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1.
One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…
Chapter 13 Solutions
Brief Principles of Macroeconomics - With MindTap
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- In 1990, the price level for the United States was 100, the price level for Pugelovia was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced “p’noot”) was equal to $1. In 2013, the U.S. price level had risen to 260, and the Pugelovian price level had risen to 390. a. According to PPP, what should the dollar–pnut exchange rate be in 2013? b. If the actual dollar–pnut exchange rate is $1/pnut in 2013, is the pnut overvalued or undervalued relative to PPP?arrow_forwardSuppose Argentina gets inflation under control and the Argentine inflation rate decreases substantially. What would likely happen to the demand for Argentine pesos, the supply of Argentine pesos, and the peso/U.S. dollar exchange rate?arrow_forwardThe euro/dollar exchange rate is 1 euro = $1.20. According to the law of one price, a camera that sells for $240 in New York should sell for how many euros in Germany?arrow_forward
- What does it mean to say that the U.S. dollar has depreciated in value in relation to the Mexican peso? What does it mean to say that the Mexican peso has appreciated in value relative to the U.S. dollar?arrow_forwardWe noted that in 1900, the fixed exchange rate between the British pound and the U.S. dollar was 1 pound equals $5. What is the exchange rate today? Whose currency has gained the most in purchasing power? What caused this dramatic change in the exchange rate?arrow_forwardIf Philippines gets inflation under control and the Philippine inflation rate decreases substantially, what would likely happen to the demand for Philippine pesos, the supply of Philippine pesos, and the peso/U.S. dollar exchange rate?arrow_forward
- Given the definition of the exchange rate , if the Canadian dollar is the domestic currency and US dollar the foreign currency, what does a nominal exchange rate of 1.15 means?arrow_forwardIf a "Big Mac costs $4.00 in the United States and 200 yen in Japan, then the implied "purchasing-power-parity" exchange rate using the "Big Mac" is __________. If the actual exchange rate in the market is 120 yen = $1, then an economist would say that the actual Japanese yen is __________ in comparison with its "purchasing-power-parity" rate.arrow_forwardSuppose that if you purchase a big Mac in Coral Springs, FL in the US, it will cost you $3.95. On the other hand, if you purchase the same big Mac in Florianopolis in southern Brazil, it will cost you 18.85 Brazilian real. The current exchange rate is $1 US buys 5.60 real. In this case, according to the law of one price, the exchange rate should be that $1 US buys time we predict that the US dollar should real, and hence, over ---- O 5.95; appreciate O 5.95; depreciate O 4.77; appreciate 4.77; depreciatearrow_forward
- when the exchange rate for the British pound changes from $1.60 per pound to $1.40 per pound, then, holding everything else constant, the pound has __________, American wheat sold in Britain becomes _________ expensive, and British cars sold in the United States become __________ expensive. depreciated, less, less depreciated, more, less appreciated, more, less appreciated, more, more depreciated, more, more appreciated, less, more depreciated, less, morearrow_forwardThe NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchanges rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative US dollar? Explain your answer and show the calculation.arrow_forwardA case study in the chapter analyzed purchasing-power parity for several countries using the price of Big Macs. Here are data for a few more countries: For each country, select the predicted exchange rate of the local currency per U.S. dollar. (Hint: Recall that the U.S. price of a Big Mac was $4.93.) Price of a Big Mac Predicted Exchange Rate Actual Exchange Rate Country Chile 2,100 pesos 715 pesos/$ 900 forints 293 forints/$ 75 korunas 25.1 korunas/$ 13.5 real 4.02 real/$ 5.84 C$ 1.41 C$/$ Hungary Czech Republic Brazil Canada According to purchasing-power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is dollar. However, the actual exchange rate is forints per Canadian dollar. forints per Canadianarrow_forward
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