Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 29, Problem 11P
To determine
To fill:
The effect on the supply of the dollars, the
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Draw the exchange market where dollars trade for British Pounds, with the equilibrium exchange rate at $1.18 and the equilibrium total amount of Pounds traded at 10 million.
a> Assume that people in Britain become pessimistic about visiting, buying from, or investing in the United States. How will this market be affected? (i.e., which curve(s) will shift, and in which direction?)
b> What will happen to the equilibrium quantity of Pounds traded after the event in part a? What will happen to the equilibrium exchange rate?
Suppose the exchange rate between the South African Rand (R) and the United States Dollar ($) changed from R10 per $1 to R15 per $1. If domestic prices remain the same, what would be the effect of this situation on the Rand and South Africa's imports?
Select one:
a. A depreciation of the Rand, making South African imports from the United States more expensive
b. A depreciation of the Rand, making South African imports from the United States cheaper
c. The Rand would buy three times more goods than before the change occurred
d. Appreciation of the Rand, making South African imports from the United States cheaper..
Trade Restriction Effects on Exchange Rates Assume that the Japanese government relaxes its controls on imports by Japanese companies. Other things being equal, how should this affect the (a) U.S. demand for Japanese yen, (b) supply of yen for sale, and (c) equilibrium value of the yen?
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- Please no written by hand solutions Dollars per British pound Quantity Demanded Dollars per Pound Quantity Supplied 200 5 600 240 4 480 300 3 410 360 2 360 390 1 330 a. What is the equilibrium exchange rate? b. What will be the market condition if the exchange rate is $3 per pound? c. What will be the market condition if the exchange rate is $1 per pound?arrow_forward. If a US resident spends $1,000 to buy €880 worth of French burgundy wine, the US balance of payments shows… a) current acct imports of -$1,000 and capital acct exports of +€880 b) current acct imports of -€880 and capital acct exports of -$1,000 c) current acct imports of -$1,000 and capital acct exports of +$1,000 d) capital acct exports of +$1,000 and capital acct imports of -$1,000.arrow_forwardSuppose that the price of a commodity is 3 50 in Suppose that the price of a commodity is $3.50 in the United States and €4 in the European Monetary Union and the actual exchange rate between the dollar and the euro is R = $1/€1, but, the equilibrium exchange rate R′ = $0.75/€1. (a) Will the United States import or export this commodity? (b) Does the United States have a comparative advantage in this commodity? Suppose that the price of a commodity is 3 50 inarrow_forward
- need answer . absuletly upvote !!!! 1) Consider the dollar-yen exchange market, where the exchange rate represents the dollar price of one yen. The US is the demand side of the market and Japan is the supply side. In each of the following cases determine whether the exchange rate increases or decreases: a) per capita income in the US increases b) per capita income in Japan increases c) US inflation is greater than Japan's inflation d) there is an increase in US interest rates.arrow_forwardUnited Arab Emirates 14.75 3.6731 Argentina 171 60.0656 Australia 6.45 1.449065353 Azerbaijan 3.95 1.6965 Bahrain 1.4 0.377 Brazil 19.9 4.1419 The table contains the price of a BigMac in a variety o fcountries. The table also contains exchange rates relative to the US dollar. Assume the United Kingdom is the home country. a. Assuming that purchasing power parity, (i.e. law of one price) holds, calculate the ex-change rate implied/predicted by PPP for each country. b. Which currency is the most undervalued and most overvalued relative to the BritishPound?arrow_forward5 3.Using an appropriate diagram, show the deadweight loss following the introductionof a tax on a good. Distinguish between the changes in consumer surplus andproducer surplus.5. Using an appropriate diagram, under a floating exchange rate regime show how adecrease in demand for a country’s exports would affect the exchange rate of thedomestic currency.arrow_forward
- Consider the foreign exchange market. For each of the scenarios below, answer thefollowing questions: (1) Which curve moves? (2) In which direction does it move? (3)What happens to the nominal exchange rate in equilibrium (i.e., does the US Dollarappreciate or depreciate)?(a) Brazil places tariffs on US products, limiting imports from America.(b) The US becomes a much riskier place to invest because of widespread politicalunrest.(c) Firms in the UK become much more profitable than those in the US.(d) The global economy surges, sparking higher consumption everywhere in the world.(e) Japan’s central bank cuts interest rates in that country.(f) Mexico’s firms do a much better job of marketing their products to the UnitedStates.arrow_forwardAssume that there's an increse in US consumers' preference for Japanese automobile. Which of the following chanfes will most likedly take place in the market for dollars a) It will take more yen to purchase the same amount of dollars b) the demand for dollars will increase c) the supply for dollars will increase d) the supply and demand of dollars will decrease e) there will be no change in the foreign exchange marketarrow_forwardExchange rates are an important factor when doing business internationally. Please discuss: a. Potential mechanisms through which exchange rates affect revenues of multinational enterprises (MNEs) doing foreign direct investment (FDI) in a given foeign countryn (include atleast 3 mechanisms ). b. What stratergies can MNEs employ to hedge against the risks of stemming from foreign exchange (include atleast two potential stratergies).arrow_forward
- If the dollar increases in value against your INR(It takes more foreign currency to buy one dollar, or said another way, it takes less dollar to buy one unit of foreign currency) will it make US exports to your research country more or less attractive to residents of your research country (assume for questions 3 and 4 that all else is held constant)? Why? will it make US imports from your research country more or less expensive to US residents? Why?arrow_forwardTrue / False Question , explain breifly ( 3 sentences would be enough ) 1. A trade deficit must be offset by foreign savings. 2. Imports into Japan are positively correlated with the value of the yen. 3. The purchasing power parity (PPP) hypothesis is that the real exchange rate willadjust so that the purchasing power of a currency will be the same in every country.arrow_forwardQ.1.10 Which of the following statements is correct? (2)(1) When a British firm invests in a bicycle manufacturing facility in South Africa,the amount concerned is entered as an inflow on the current account of theSouth African balance of payments.(2) When someone purchases a second‐hand car, the transaction is included inthe calculation of GDP in the year the sale took place.(3) A deficit on the current account of the balance of payments indicates thatthe country exported more than it imported during the period in question.(4) In the base year, the value of nominal GDP is equal to the value of real GDP.arrow_forward
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