1. (a) In the figure below, illustrate the effect of an increase in the U.S. interest rate. Whatis the effect on the foreign exchange rate?Foreign exchange rate (yen per dollar)105So1009590Do8034Quantity (trillions of dollars per day)(b). Explain the three components of the balance of payments accounts. What must thesethree balances sum to?(c) If imports are $1,200 billion and exports are $1,300 billion, while net interest income andnet transfers are zero, what is the current account balance?(d) If the current account balance is $235 billion and U.S. official reserves increased by $35billion, what is the official settlements account balance and the capital account balance?'

Answered: Image /qna-images/answer/df688d7b-839f-432e-9cd5-bedf5c67eb80.jpg

Answered: 1. (a) In the figure below, illustrate…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

5. Capital flight The graphs below depict the loanable funds market and the relationship between real interest rates and the level of net capital outflow (NCO) calculated in terms of the Mexican peso. REAL INTEREST RATE (Percent) The Market for Loanable Funds in Mexico 1 4 6 7 LOANABLE FUNDS (Billions of pesos) Initial state After capital flight 3 REAL EXCHANGE RATE (Dollars per peso) Supply Demand Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) 8 REAL INTEREST RATE (Percent) Supply Effects of capital flight The Market for Foreign-Currency Exchange QUANTITY OF PESOS Suppose now that a sudden bout of political turmoil in Mexico causes world financial markets to become uneasy. Because investors now see Mexico as unstable, they decide to pull a portion of their assets out of Mexico and put them into more stable economies. This unexpected shock to the demand for assets in Mexico is…
4. Use the following information for the fictional economy Wee Britain in the year 2020: Balance of Payments Accounts Current account deficit of $3 billion Financial account surplus of $3.25 billion Earnings of $150 million for foreign factors located in Wee Britain Trade deficit of $500 million Net of -$50 million in unilateral transfers National Income and Product Accounts GNE of $9 billion Investment of $3 billion Total government purchases of $2 billion a. Calculate Wee Britain's capital account balance. Is Wee Britain a net lender or a net borrower? Explain b. Calculate net factor income from abroad for Wee Britain. c. Calculate Wee Britain's GDP, GNI, and GNDI. d. Calculate consumption for Wee Britain.
7. Balance of payments and the foreign exchange market The following graph shows the market for euros, which is initially in equilibrium. Suppose an economic downturn in the United States leads to a drop in American incomes, causing imports from Europe to decline. On the graph, illustrate the effect of an economic downturn on the market for euros by shifting the appropriate curve or curves. ? EXCHANGE RATE (Dollars per euro) 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0 1 2 Supply Demand QUANTITY OF EUROS (Billions) 7 8 Demand Supply Flexible exchange rates Lower interest rates by way of monetary policy Reduce income taxes in the United States Sell U.S. euro reserves in the foreign exchange market Fixed exchange rates On the graph, use the purple point (diamond symbol) to indicate the new equilibrium exchange rate and quantity under a system of flexible exchange rates. Under a system of flexible exchange rates, the dollar will until the foreign exchange market reaches an equilibrium…
4) Suppose the price level in India is 9,500, the price level in the United States is 140, and the price level in Brazil is 750. Suppose the current nominal exchange rates are 75 Indian rupee per dollar and 5 Brazilian real per dollar. Calculate the real exchange rates (rounded to two decimal places) between each pair of countries. Note that you will have to first calculate the nominal exchange rate between Brazil and South India before calculating the real exchange rate between those two countries. (4
15. If China wanted to maintain both monetary autonomy and a fixed nominal exchange rate in regard to the United States in the long run, (a) the Chinese would want to sell their financial assets. (b) the Chinese would have to want to buy American goods. (c) the price level in China would have to move in tandem with the U.S. price level. (d) the law of one price would have to hold for at least one good. (e) Chinese interest rates would have to move in tandem with U.S. interest rates.
1.Recently, Hong Kong is undergoing several protests against the extradition bills. (Note: define the Hong Kong as a home country and Japan as foreign country.) Explain in words how this political event affects (i) the amount of net exports of Japan, the safe haven country, and (ii) the value Japanese Yen (JPY) relative to other currencies. 2. Thanks to the establishment of Eastern Economic Corridor (EEC), the Thai governments propose to offer tax breaks for certain years to attract foreign companies to construct their production sites. Explain in words how this change in fiscal policy affects the national saving (S), domestic gross investment (I!), net capital outflow (NKO), the real interest rate (?), the real exchange rate, (e") and the trade balance of Thailand.
3. The balance of payments The following table shows a hypothetical balance-of-payments statement for the United States. All figures are in billions of dollars. Complete the table by filling in the missing cells. Balance of Payments (Billions of U.S. dollars) Current Account Goods and Services Exports 200 Goods and Services Imports -280 Trade Balance Income (net) Current Account Balance Capital Account U.S. Capital Inflow U.S. Capital Outflow Capital Account Balance Statistical Discrepancy 98 -62 10 According to the table, the United States is running a trade The net balance of payments equals $ billion.
(a) Why might European Monetary System (EMS) provisions for the extension of central bank credits from strong- to-weak-currency members have increased the stability of EMS exchange rates? (b) Figure 4 below illustrates the monetary approach to the exchange rate determination. With the aid of this diagram, discuss how a permanent increase in the money supply growth rate in the United States of America will affect its long-run interest rate, price level and exchange rate. (a) U.S. money supply, Mus (b) Dollar interest rate, Rs R² = R₁ + Ar Slope + AT R Mus.to Time (d) Dollar/euro exchange rate, Esle Slope = Slope = to Time to Time Figure 4: Macroeconomic variables reaction after a permanent increase in the money growth rate in USA money supply (c) U.S. price level, Pus Slope = to Time Slope = + Ar Slope = + Ar
change rate $1.75 1.50 1.25 1.00 200 500 S d 700 900 950 1,000 S D₂ Quantity of euros traded (millions per day) 17) Refer to Figure 30-8. The equilibrium exchange rate is at A $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate A) there is a shortage of euros equal to 200 million. B) there is a surplus of euros equal to 700 million. Othere is a shortage of euros equal to 500 million. D) there is a surplus of euros equal to 300 million.
6. (a) Discuss the efficacy of fiscal and monetary policies under a fixed exchange rate regime, characterized by perfect capital mobility, using AA-DD diagram. (b) Firms exporting to Agriland are not willing to change prices despite a nominal exchange rate depreciation in Agriland. How do you explain this phenomenon? Do you think that the firms exporting to Agriland will behave in a similar manner if there was an exchange rate appreciation in Agriland? Explain. (c) Should the governments be concerned beyond the soundness of individual financial institutions? What is your opinion in this regard in the context of the changing international regulatory environment?
a decrease an increase no change REAL GDP our answer to the graph question, the appreciation of the U.S. dollar leads to in aggregate output in the United States. in the aggregate price level and
5) Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets: a. Liberty purchases an Airbus plane assembled in France b. Mercedes-Benz decides to build an assembly plant in Knoxville c. A Liberty student decides to spend a year studying at the Sorbonne in Paris d. An Italian manufacturer ships machinery from Rome to Venice on an Egyptian freighter e. It is widely expected that the euro will depreciate in the near future

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS