EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
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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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The graph represents a foreign exchange market and shows the supply and demand for Median Earth's currency, the shilling. The price of a shilling is stated in terms of Normandy's currency, the doubloon. The horizontal axis shows the quantity of shillings that are desired and offered for exchange. The exchange rate in doubloons per shilling is measured on the vertical axis. Answer the questions based on the graph.
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.
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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…
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 20 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
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