Assume that initially nominal exchange rate is E1=4 ($1 = ±4) and domestic (Turkey) inflation rate is nTR=10% percent while the US inflation rate is nUS*=0%. If export value of Turkey equals t 200 billion and it's import is $80 billion. Initially Turkey NX (net export) would display t billion deficit. lf the nominal exchange rate increases suddenly from E1=4 to E2=5,5 while the price levels are still fixed (at the first step of J Curve) NX would be t billion deficit in short run. If the real exchange rate elasticity of export is 0,4 and real exchange rate elasticity of import is -0,4. NX would converge to t billion deficit in long run.
Assume that initially nominal exchange rate is E1=4 ($1 = ±4) and domestic (Turkey) inflation rate is nTR=10% percent while the US inflation rate is nUS*=0%. If export value of Turkey equals t 200 billion and it's import is $80 billion. Initially Turkey NX (net export) would display t billion deficit. lf the nominal exchange rate increases suddenly from E1=4 to E2=5,5 while the price levels are still fixed (at the first step of J Curve) NX would be t billion deficit in short run. If the real exchange rate elasticity of export is 0,4 and real exchange rate elasticity of import is -0,4. NX would converge to t billion deficit in long run.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Assume that initially nominal exchange rate is E1=4 ($1 = ±4) and domestic (Turkey) inflation rate is TTR=10% percent while the US inflation rate is tUS*=0%. If
%3D
export value of Turkey equals ± 200 billion and it's import is $80 billion. Initially Turkey NX (net export) would display t
billion deficit. If
the nominal exchange rate increases suddenly from E1=4 to E2=5,5 while the price levels are still fixed (at the first step of J Curve) NX would be t
billion deficit in short run. If the real exchange rate elasticity of export is 0,4 and real exchange rate elasticity of import is -0,4. NX
would converge to t
billion deficit in long run.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6e1d7f46-fe78-42db-9b0e-45a1fd1ee61d%2F0d622977-8237-448a-9274-4c57b0af5f8f%2Fu0apfs_processed.png&w=3840&q=75)
Transcribed Image Text:Assume that initially nominal exchange rate is E1=4 ($1 = ±4) and domestic (Turkey) inflation rate is TTR=10% percent while the US inflation rate is tUS*=0%. If
%3D
export value of Turkey equals ± 200 billion and it's import is $80 billion. Initially Turkey NX (net export) would display t
billion deficit. If
the nominal exchange rate increases suddenly from E1=4 to E2=5,5 while the price levels are still fixed (at the first step of J Curve) NX would be t
billion deficit in short run. If the real exchange rate elasticity of export is 0,4 and real exchange rate elasticity of import is -0,4. NX
would converge to t
billion deficit in long run.
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