Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 20, Problem 4E
a)
To determine
The graph of the exchange rate over time.
b)
To determine
Explain the appreciation or
(c)
To determine
Discuss the statement using the tools used in the chapter.
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For each prompt below, carefully and thoroughly follow the directions. For the graphs, be certain to accurately label all axes, curves, and points as appropriate. Show your work for any calculations.
(a) Draw the foreign exchange market for euros in terms of pounds. Label the equilibrium exchange rate (e1), the equilibrium quantity (Q1), and the current exchange rate (ec). Assume that there is a shortage of the euro at the current rate.
(b) Assume the current exchange rate for the Chinese yuan in terms of the U.S. dollar is $0.20 per yuan. Based on this information, draw the foreign exchange market for dollars. Assume the market is in equilibrium.
The United States and Mexico are trading partners.
(c) Using side-by-side graphs of the exchange market for the U.S. dollar and the Mexican peso, show the impact of an increase in the demand for pesos.
(d) Based on the change indicated in part (c), is the U.S. dollar appreciating or depreciating?
(e) If the United States began…
The following figure shows the Current Account Balance (similar to the Trade Balance) of Japan
(black line) and China (red line). During their growth periods (1980s for Japan and 2000s for
China), were these countries net savers or borrowers? What are some ways that the
governments intervened in the foreign exchange market to keep their BOP from adjusting
towards 0?
12.5
10.0
7.5
5.0
2.5
0.0
-5.0
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: Organization for Economic Co-operation and Development
fred.stlouisfed.org
US $, Sum Over Component Sub-periods/10000000O000
In the last 4 years, the exchange rate Pound to Euro depreciated (decreased) to an average of 1.13 (from 1.30 before 2016). When citizens from the UK would go on holidays in a Euro zone country (e.g. Spain), would a lower exchange rate of 1.13(Sterling Pound to Euro) instead of an exchange rate of 1.30 (Pound to Euro) be of advantage or disadvantage for British tourists in Europe? Explain.
Chapter 20 Solutions
Macroeconomics (Fourth Edition)
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