The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely to the rise in the U.S. budget deficit. On the other hand, the popular press sometimes claims that the increased trade deficit resulted from a decline in the quality of U.S. products relative to foreign products. a. Assume that U.S. products did decline in relative quality during the 1980s. How did this affect net exports at any given exchange rate ? b. Draw a three-panel diagram to show the effect of this shift in net exports on the U.S. real exchange rate and trade balance. c. Is the claim in the popular press consistent with the model in this chapter? Does a decline in the quality of U.S. products have any effect on our standard of living? ( Hint: When we sell our goods to foreigners, what do we receive in return?)

BuyFind

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
BuyFind

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

Solutions

Chapter
Section
Chapter 32, Problem 3PA
Textbook Problem

The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely to the rise in the U.S. budget deficit. On the other hand, the popular press sometimes claims that the increased trade deficit resulted from a decline in the quality of U.S. products relative to foreign products.

a. Assume that U.S. products did decline in relative quality during the 1980s. How did this affect net exports at any given exchange rate?

b. Draw a three-panel diagram to show the effect of this shift in net exports on the U.S. real exchange rate and trade balance.

c. Is the claim in the popular press consistent with the model in this chapter? Does a decline in the quality of U.S. products have any effect on our standard of living? (Hint: When we sell our goods to foreigners, what do we receive in return?)

Expert Solution

Want to see the full answer?

Check out a sample textbook solution.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Additional Business Textbook Solutions

Find more solutions based on key concepts
What is cultural diversity in an organization?

Foundations of Business (MindTap Course List)

Define discounting and compounding.

Intermediate Accounting: Reporting And Analysis

For what purpose are departmental reports useful to management?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

CASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)