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 19, Problem 3.2P
Subpart (a):
To determine
The shift in demand curve to the right.
Subpart (b):
To determine
The shift in supply curve to left.
Subpart (c):
To determine
The effect on the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The following paragraphs discuss the impact of various economic events on the exchange rate. Complete the paragraphs by filling in the blanks. Use any of the words from the following list (you can use each of these words as many times as you wish but choose carefully - your sentence must make grammatical sense):demand
Â
supply
left
right
buy
sell
imports
exports
rise
fall
increases
decreases
Â
What happens to the current account balance and the exchange rate when the following happens?
Â
Suppose that New Zealand firms become more profitable relative to foreign firms and so increase their payment of dividends (everything else held constant). The value for net foreign income therefore ________ and the value of the current account balance will _______.
Â
Payment of NZ dividends to foreign owners affects the _______ or/of $NZ while payments of foreign dividends to NZ owners of foreign companies affects the _______ for/of $NZ.
Â
Therefore the impact of the change in profit of NZ firms is…
Consider two countries with friendly trade relations, South Korea and Australia. Suppose that the real interest rate in South Korea increases relative to
Australia.
Show how the change in the real interest rate affects the equilibrium exchange rate by shifting one or both of the curves on the graph.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and
to its original position, just drag it a little farther.
EXCHANGE RATE (wones per dollar)
Supply
Demand
QUANTITY (Millions of dollars)
As a result of the change in the real interest rate, the South Korean won
Demand
Supply
(?)
in value relative to the Australian dollar.
snaps back
Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected?
Â
professors note
Supply and demand for currencies can be tricky, not least due to the confusing idea that what we are buying or selling is money itself!
Once you can wrap your mind around the idea that money is what is being obtained for other money, the next set of questions relates to what would or could make the price of one money change in terms of another.
To this effect, I'd recommend a primer from Investopedia: Six Factors That Influence Exchange Rates.
For your consideration in responding to this post, I suggest reading on how the Carry Trade has the capacity to magnify systemic risk.
Chapter 19 Solutions
Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
Knowledge Booster
Similar questions
- 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?arrow_forwardConsider the exchange rate between the Saudi riyal and the euro. Suppose the Saudi government and the Eurozone governments agree to fix the exchange rate at 1 riyal per euro, as shown by the grey line on the following graph. Refer to the following graph when answering the questions that follow. EXCHANGE RATE (Riyal per euro) 4.0 3.5 3.0 1.5 1.0 0.5 0 0 4 Supply of Euros Demand for Euros 8 12 16 20 QUANTITY OF EUROS (Billions) 24 28 32 At the official riyal price of euros, there is a At the official exchange rate of 1 riyal per euro, the euro is pay and the Saudi riyal is ▼ for European exports than they would with a free-floating exchange rate. of euros in the foreign exchange market. , which means that Saudis Suppose the governments in the Eurozone and Saudi Arabia agree to change the official exchange rate from 1 riyal per euro to 2 riyal per euro. The action represents a of the euro and a of the riyal.arrow_forwardThe following paragraphs discuss the impact of various economic events on the exchange rate. Complete the paragraphs by filling in the blanks. Use any of the words from the following list (you can use each of these words as many times as you wish): demandsupplyleftrightbuysellimportsexportsrisefallincreasesdecreases What happens to the exchange rate when the current account balance falls?A falling current account balance means that the value of ____ are rising relative to _____. Let's assume that one does rise and one does fall to cause the current account balance to fall. _____ affects the ____ for/of $NZ so a decline in this means ____ for/of $NZ shifts left. _____ affects the Answer for/of $NZ so a rise in this means _____ for/of $NZ to shift right. The combined effect from the fall in the current account balance is that we expect the value of the $NZ to ____. What happens to the exchange rate when New Zealand interest rates fall relative to the rest of the world?A fall in NZ…arrow_forward
- The following paragraphs discuss the impact of various economic events on the exchange rate. Complete the paragraphs by filling in the blanks. Use any of the words from the following list (you can use each of these words as many times as you wish): demandsupplyleftrightbuysellimportsexportsrisefallincreasesdecreases What happens to the exchange rate when the current account balance falls?A falling current account balance means that the value of ____(1) are rising relative to _____(2). Let's assume that one does rise and one does fall to cause the current account balance to fall. _____(3) affects the ____(4) for/of $NZ so a decline in this means ____(5) for/of $NZ shifts left. _____(6) affects the _____(7) for/of $NZ so a rise in this means _____ (8)for/of $NZ to shift right. The combined effect from the fall in the current account balance is that we expect the value of the $NZ to ____(9). What happens to the exchange rate when New Zealand interest rates fall relative to the rest…arrow_forward1.1 What is the difference between the nominal exchange rate and the real exchange rate? When a newspaper article uses the phrase “the exchange rate,” is the article typically referring to the nominal exchange rate or the real exchange rate? 1.2 What is the difference between a direct quotation of an an exchange rate and an indirect quotation? If the exchange rate between the yen and the dollar changes from ¥80 = $1 to ¥90 = 1, has the yen appreciated or depreciated against the dollar? Has the dollar appreciated or depreciated against the yen? 1.3 Suppose that the euro falls in value relative to the dollar. What is the likely effect on European exports to the United States? What is the likely effect on U.S. exports to Europe? No plagiarism I’m really stuck it’s hard for me to understand please helparrow_forwardSuppose that real interest rates increase across Europe. Explain how this development will affect U.S. net capital outflow. Then explain how it will affect U.S. net exports by using a formula from the chapter and by drawing a diagram. What will happen to the U.S. real interest rate and real exchange rate?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning