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

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(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
5. Individual Problems 11-6 Consider two similar restaurants in close proximity to each other on either side of the U.S.-Mexico border. Suppose the dollar depreciates against the peso. The following graph shows the supply and demand curves for meals at the restaurant on the Mexican side of the border. On the following graph, shift either the supply curve or the demand curve to represent the effect of the devaluation of the dollar against the peso on the market for meals at the restaurant on the Mexican side of the border. DSPRICE (Pesos)QUANTITY (MEALS)D S The dollar devaluation helps .
6. Most foreign exchange transactions are through the U.S. dollar. If the transaction is expressed as the foreign currency per dollar this is known as _____________ whereas ___________ are expressed as dollars per foreign unit. a. European terms; indirect b. American terms; direct c. American terms; European terms d. European terms; American terms
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
2. Determining long-term exchange rates Consider two countries, the United States and Japan, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in Japan. The following graph shows the supply and demand for the Japanese yen in the United States before the change in productivity. The vertical axis is the exchange rate of the yen in terms of the dollar, and the horizontal axis is the quantity of yen Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph Note: Select and drag one or both of the curves to the desired position. Curves will snap Into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther EXCHANGE RATE (Dollars per yeni Demand QUANTITY (Millions of yen) As a result of the change in productivity, the U.S. doilar appreciates depreciates Demand 161 Supply
2. The Table gives some information about Canada's international transactions in 2010. Item Billions of dollars. Imports of goods and services Net foreign investment in Canada Exports of goods and services. Net interest income. Net transfers Statistical discrepancy 508 54 476 16 (-3) 1 (a) Calculate the balance on the three balance of payments accounts. (b) Was Canada a net borrower or a net lender in 2010? Explain your answer.
4. Pricing foreign goods The exchange rate is the price of one currency in terms of another currency. An exchange rate specifies how many units of one country's currency are needed to buy one unit of another country's currency. Suppose the following table forecasts exchange rate data for March 16, 2018, in terms of U.S. dollars per unit of foreign currency. Use the information in the table to answer the questions that follow. Cost of One Unit of Foreign Currency Foreign Currency (Dollars) Lithuanian litas (LTL) 0.3666 Canadian dollar (CAD) 0.8493 Euro (EUR) 1.3288 Mexican peso (MXN) 0.0889 United Kingdom pound (GBP) 1.8965 Suppose that on March 16, 2018, an antique woven rug handmade in Lithuania is priced at LTL 2,750. The approximate U.S. dollar price of the rug would be If the exchange rate for the U.S. dollar-Lithuanian litas rises from $0.3666 to $0.4216 per Lithuanian litas, the U.S. dollar v in value, or relative to the Lithuanian litas. 925 PM search N O 33°F 12/5/2021 21 hp…

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