Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 27.1, Problem 2QQ
To determine
Equilibrium exchange rate.
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Draw the exchange market where dollars trade for British Pounds, with the equilibrium exchange rate at $1.18 and the equilibrium total amount of Pounds traded at 10 million.
a> Assume that people in Britain become pessimistic about visiting, buying from, or investing in the United States. How will this market be affected? (i.e., which curve(s) will shift, and in which direction?)
b> What will happen to the equilibrium quantity of Pounds traded after the event in part a? What will happen to the equilibrium exchange rate?
Other things the same, if the U.S. price level falls, then
Answer
the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate rises.
the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate falls.
the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate rises.
the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate falls.
Suppose that Canada imposes an import quota on steel. Which statement best describes the most likely effects of this quota?
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a. The quota would cause the real exchange rate of Canadian dollars to depreciate, but it would not change the real interest rate in Canada.
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b. The quota would cause the real exchange rate of Canadian dollars to appreciate, but it would not change the real interest rate in Canada.
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c. The quota would cause the real exchange rate of Canadian dollars to depreciate and the real interest rate in Canada to decrease.
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d. The quota would cause the real exchange rate of Canadian dollars to appreciate and the real interest rate in Canada to increase.
Chapter 27 Solutions
Microeconomics
Ch. 27.1 - Prob. 1QQCh. 27.1 - Prob. 2QQCh. 27.1 - Prob. 3QQCh. 27.1 - Prob. 4QQCh. 27.A - Prob. 1ADQCh. 27.A - Prob. 1ARQCh. 27.A - Prob. 1APCh. 27 - Prob. 1DQCh. 27 - Prob. 2DQCh. 27 - Prob. 3DQ
Ch. 27 - Prob. 4DQCh. 27 - Prob. 5DQCh. 27 - Prob. 6DQCh. 27 - Prob. 7DQCh. 27 - Prob. 8DQCh. 27 - Prob. 9DQCh. 27 - Prob. 10DQCh. 27 - Prob. 11DQCh. 27 - Prob. 1RQCh. 27 - Prob. 2RQCh. 27 - Prob. 3RQCh. 27 - Prob. 4RQCh. 27 - Prob. 5RQCh. 27 - Prob. 6RQCh. 27 - Prob. 7RQCh. 27 - Prob. 8RQCh. 27 - Prob. 9RQCh. 27 - Prob. 10RQCh. 27 - Prob. 1PCh. 27 - Prob. 2PCh. 27 - Prob. 3PCh. 27 - Prob. 4PCh. 27 - Prob. 5P
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- 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_forwardPresently, the dollar is worth 140 Japanese yen in the spot market. The interest rate in Japan on 90-day government securities is 4 percent; it is 8 percent in the United States. a. If the interest-rate parity theorem holds, what is the implied 90-day forward exchange rate in yen per dollar? b. What would be implied if the U.S. interest rate were 6 percent?arrow_forward(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…arrow_forward
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