Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421193
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 2.4P
Subpart (a):
To determine
The
Subpart (b):
To determine
The currency exchange and trade flow.
Subpart (c):
To determine
The adjustment in exchange rate.
Subpart (d):
To determine
The trade flow prediction after the exchange rate is adjusted.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
We are looking at gas trade between Russia and the EU, assuming that both regions have upward-sloping supply curves and downward-sloping demand curves in a diagram with quantity on the horizontal axis and price on the vertical axis. To simplify the situation, we also assume that the exchange rate is constant and equal to 1 (so we do not need to differentiate between prices in Russia and the EU). In autarky equilibrium, there is a higher price in the EU than in Russia. Unless otherwise specified, there are no trade costs, and the capacity of the pipelines is not binding (i.e., with free trade, prices are initially the same in the EU and Russia). Without Nord Stream 1/2 in operation, the capacity of gas deliveries to Europe is much lower (but not zero). What happens (with the welfare of the two countries and consumer/producer surplus) if the EU stops importing Russian gas?
We are looking at gas trade between Russia and the EU, assuming that both regions have upward-sloping supply curves and downward-sloping demand curves in a diagram with quantity on the horizontal axis and price on the vertical axis. To simplify the situation, we also assume that the exchange rate is constant and equal to 1 (so we do not need to differentiate between prices in Russia and the EU). In autarky equilibrium, there is a higher price in the EU than in Russia. Unless otherwise specified, there are no trade costs, and the capacity of the pipelines is not binding (i.e., with free trade, prices are initially the same in the EU and Russia).
What happens (with welfare in the two countries and consumer/producer surplus) if the EU stops importing Russian gas?
The table suggests that Italy has an absolute advantage over Romania in (footweat, neither product, both products, beef)Â and a comparative advantage in (footweat, neither product, both products, beef).
The table suggests that wages in Italy are (the sameas, higher than, lower than) in Romania.
As a result of Romania’s joining the EU, employment in Romania is likely to fall in (the footwear industry, neither industry, both industries, the beef industry) .
True or False: The degree of openness of the Romanian economy will not influence the mix of jobs.
a)True
Â
b)False
Chapter 18 Solutions
Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
Knowledge Booster
Similar questions
- Suppose that the price of a commodity is 3 50 in Suppose that the price of a commodity is $3.50 in the United States and €4 in the European Monetary Union and the actual exchange rate between the dollar and the euro is R = $1/€1, but, the equilibrium exchange rate R′ = $0.75/€1. (a) Will the United States import or export this commodity? (b) Does the United States have a comparative advantage in this commodity? Suppose that the price of a commodity is 3 50 inarrow_forwardUnder which of the following conditions will trade not take place? Select one: Country X and Y have weak trade relations Country X gains more than country Y Country X and Y get the same gain as the international Exchange Rate Country Y gains more than country X Country X and Y get equal gains to the Domestic Exchange Ratearrow_forwardSuppose you are hired as a consultant by the government to determine the impact of trade policies. The government is suggesting a 10% nominal tariff on imported cars in order to limit competition against domestically assembled cars that incorporates only about 20 percent of domestic inputs in its total inputs. Discuss nominal tariffs and effective tariff rates. How much is the effective tariff rate? Why is the effective tariff rate different than the nominal tariff rate? Suppose the currency depreciation would lead to a higher price in the free market. However, the government wants to maintain the same amount of final price after tariffs. Determine the impact on the nominal tariff rate.arrow_forward
- For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency. 1. American- made cars become more popular overseas  2. The United States experiences recession, while other nations enjoy economic growth.  3. Inflation rate accelerates in the United States, while inflation rates remain constant in the other nations.  4. Real interest rates in the United States rise, while real interest rates abroad remain constant.  5. The Japanese put quotas and high tariffs on all imports from the United States.arrow_forwardAs a country develops economically, what changes usually take place in the goods it exports? Select your answer and explain WHY There is little change because comparative advantage does not change. Raw materials and agricultural products decline in importance, replaced by services and manufactured goods. Services and manufactured goods decline in importance, replaced by raw materials and agricultural products. Exports go from being diversified to being specialized in whatever the country finds its comparative advantage.arrow_forwardWhich of the following tends to be observed if a country increases its tariffs on imports? a. The demand for imports tends to increase. b. The demand for exports tends to decrease. c. This will lead to an increase in the current account. d. This will lead to a decrease in the financial account.arrow_forward
- Suppose for a given country the demand for imports and exports can be expressed as shown below. Calculate the trade balance if E = 200 where E is the exchange ratio. Be sure to include the sign if you come up with a negative number. IM = 1,200 + 0.05E EX = 700 - 0.08Earrow_forwardImagine you are an advisor to your government and that your economy faces a problem of declining terms of trade for its exports. Discuss the possible policy changes for the economy and any other strategies you would recommend to avoid declining terms of trade in the future.arrow_forwardIn 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy reduced imports  A. of steel into the United States and increased U.S. exports of other goods by an equal amount. B. into the United States and made the net supply of dollars in the foreign exchange market shift right. C. of steel into the United States, but reduced U.S. exports of other goods by an equal amount. D. into the United States and made U.S. net exports rise.arrow_forward
- We look at the trade of gas between Russia and the EU and assumes that both areas' supply curves slope upwards and their demand curves slope downwards in the diagram with quantity on the horizontal axis and price on the vertical axis. To make the situation simple, we also initially assume that the exchange rate is constant, and it is 1 (so that we do not need to differentiate between the prices i Russia and the EU). In the autarky equilibria, prices are higher in the EU than in Russia. Unless otherwise specified, there are no trading costs, and the capacity of the pipelines is not binding (ie with free trade the prices are basically the same in the EU and Russia). (a) Draw and show the supply of export goods and the demand for import goods in relation to the two areas' supply and demand curves (three islands next to each other). (b) What happens (to welfare in the two countries and consumer surplus/producer surplus) if the EU stops importing Russian gas? (c) Without Nord Stream 1/2 in…arrow_forwardIs this correct? Now suppose that a country is experiencing balanced trade. Determine the relationships between the entries in the following table, and enter these relationships using the following symbols: > (greater than), < (less than), or = (equal to).arrow_forwardExplain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. a. Living in an especially large country b. Having a domestic investment rate much higher than the domestic savings rate c. Having many other large economies geographically nearby d. Having an especially large budget deficit e. Having countries with a tradition of strong protectionist legislation shutting out importsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
