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. What does it mean when a country’s currency depreciates in the foreign exchange markets?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: A Macroeconomic Theory Of The Open Economy

Section: Chapter Questions

Problem 4QR

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d. What does it mean when a country’s currency depreciates in the foreign exchange markets?

e. Who wins and who loses in an economy when its currency devaluates in the foreign exchange market?

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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1. Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. a. A fall in consumer confidence about the future induces consumers to spend less and save more. b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars. c. New regulations restricting the use of credit cards increase the demand for money.
In some cases, governments will intervene in the currency markets to incresae or decrease the value of the country's currency. Which of the following is an example of direct intervention in foreign exchange markets? A. The European Central Bank lowers interest rates to increase the value of the euro. B. The Japanese government purchasing JPY with USD to increase the value of the Japanese yen. C. China imposing barriers on imports from Europe. D. The U.S. lowers interest rates to decrease the value of the U.S. dollar.
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Other things the same, an increase in the U.S. interest rate causes U.S. net capital outflow to A. rise, so demand in the market for foreign-currency exchange shifts right... B. fall, so demand in the market for foreign-currency exchange shifts left. C. fall, so supply in the market for foreign-currency exchange shifts left. D. rise, so supply in the market for foreign-currency exchange shifts right..