32) Other things the same, if the U.S. real exchange rate depreciates, U.S. net capitaloutflowand U.S. net exports both increaseincreases and U.S. net exportsdecreaseand U.S. net exports both decreasedecreases and U.S. net exportsincrease

When the exchange rate depreciates, it makes import costlier and export cheater. This in turn…

Answered: 32) Other things the same, if the U.S.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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…
The current exchange rate is $1.00 = 1.50 Swiss franc. The exchange rate is expected to be $1.00 = 1.25 Swiss franc in six months. The U.S. dollar is expected to A. depreciate and the U.S. will import more from Switzerland B. appreciate and the U.S. will export more to Switzerland C. appreciate and the U.S. will import more from Switzerland D. depreciate and the U.S. will export more to Switzerland
If domestic interest rate is higher than foreign countries interest rates, then there will be _____________ ."A) a capital outflow and supply of domestic currency will increase. B)a capital outflow and demand for domestic currency will increase.C) a capital inflow and demand for domestic currency will increase.D) a capital inflow and demand for domestic currency will fall.
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.
18
15. Which of the given statements concerning the market for foreign currency exchange is true? a. An increase in Canadian net capital outflow increases the supply of Canadian dollars and the Canadian dollar appreciates. b. An increase in Canadian net capital outflow increases the demand for Canadian dollars and the Canadian dollar appreciates. c. An increase in Canadian net capital outflow increases the demand for Canadian dollars and the Canadian dollar depreciates. d. An increase in Canadian net capital outflow increases the supply of Canadian dollars and the Canadian dollar depreciates. e. None of the above.
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

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32) Other things the same, if the U.S. real exchange rate depreciates, U.S. net capital outflow and U.S. net exports both increase increases and U.S. net exports decrease and U.S. net exports both decrease decreases and U.S. net exports increase