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?
(1) a. If the exchange rate changes from $1.70 per British pound (₤1) to $1.72 per ₤1, has the pound (₤) appreciated or
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 borrowed last year.
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