BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

Solutions

Chapter
Section
BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

The nation of Ectenia has long banned the export of its highly prized puka shells. A newly elected president, however, removes the export ban. This change in policy will cause the nation’s currency to ________, making the goods Ectenia imports __________ expensive.

a. appreciate, less

b. appreciate, more

c. depreciate, less

d. depreciate, more

To determine

The impact of removing the export ban on exchange rate.

Explanation

The interest rate determined at the supply and demand intersection in the lonable fund market is known as the real interest rate and that determined rate in the currency exchange market is known as the real exchange rate.

Option (a):

The goods of the economy are highly priced and the export of the commodity was banned until the new government. Thus, the demand for the good is higher in the foreign market. When the export ban is removed, it will increase the foreign demand for the commodity. As a result, the exports of the economy will increase, which will increase the demand for the domestic currency in the currency exchange market. Therefore, the domestic currency will appreciate and it will make the foreign imports of the economy to become cheaper because less domestic currency can be paid for imports. Thus, option 'a' is correct.

Option (b):

The goods of the economy are highly priced and the export of the commodity was banned until the new government. Thus, the demand for the good is higher in the foreign market. When the export ban is removed, it will increase the foreign demand for the commodity. As a result, the exports of the economy will increase, which will increase the demand for the domestic currency in the currency exchange market. Therefore, the domestic currency will appreciate and it will make the foreign imports of the economy to become cheaper because less domestic currency can be for imports...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Explain how credibility might affect the cost of reducing inflation.

Principles of Macroeconomics (MindTap Course List)

What is goal congruence?

Accounting Information Systems

Why must Work in Process Inventory be adjusted for factory overhead applied at year-end?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

DEFAULT RISK PREMIUM A companys 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)