EBK EXPLORING MACROECONOMICS
7th Edition
ISBN: 9780100546400
Author: Sexton
Publisher: YUZU
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Chapter 21, Problem 11P
To determine
To fill:
The effect on the supply of the dollars, the demand for the dollars and the equilibrium exchange rate for each given case.
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If the exchange rate between the United States dollar and the Indian rupee changes from $1=60 rupees to $1=10 rupees, ceteris paribus, one would anticipate that ___________.
Group of answer choices
A) India’s exports to the United States increase
B) the current account in the United States’ balance of payments stays the same
C)the trade deficit in the United States increases
D)the United States’ imports from India increase
E)the United States’ exports to India increase
K-
Great Britain and the United States produce cheddar cheese and blue cheese. Current domestic prices per pound for each type of cheese are given in the following table
United States
$35
$50
Cheddar cheese
Blue cheese
Great Britain
£12
€25
Suppose the exchange rate is £1 = 51.
If the price ratios within each country reflect resource use, Great Britain has a comparative advantage in the production of cheddar cheese.
United States has a comparative advantage in the production of blue cheese.
Assume there are no other trading partners and that the only motive for holding foreign currency is to buy foreign goods
Explain whether the current exchange rate will lead to trade flows in both directions between the two countries
the exchange rate?
OA. Only cheddar cheese produced in Great Britain will be traded for blue cheese produced in the United States
B. Cheddar cheese and blue cheese will be purchased in Great Britain and sold in the United States
OC. Cheddar cheese and blue cheese will be…
(1) a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.72 per ₤1, has the pound (₤) appreciated or depreciated? Has the dollar appreciated or depreciated?
b. What happens to the ₤-price that British residents pay for a $500 U.S. export good due to the exchange rate change above?
c. What happens to the $-price that U.S. residents pay for a ₤1200 import good from Britain?
d. How do these changes affect the economic welfare of U.S. exporters and U.S. importers?
(2) Suppose that the euro (€) appreciates from $1.00 per €1 to $1.20 per €1. Determine whether the underlined individuals listed below would see that appreciation as a good or a bad thing.
a. A U.S. business buys €10,000 of chemicals from a German company.
b. An Italian clothing company buys $100,000 of leather from a U.S. leather maker.
c. A U.S. resident has a retirement account totaling €500,000 in a German bank.
d. A U.S. company must make an interest payment of €25,000 to the French bank from which it…
Chapter 21 Solutions
EBK EXPLORING MACROECONOMICS
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