Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies. If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate depreciates by 1%? Question 1Select one: a. it is unchanged b. improves by $0.005 million c. improves by $0.045 million d. improves by $0.055 million e. worsens by $0.005 million
Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies. If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate depreciates by 1%? Question 1Select one: a. it is unchanged b. improves by $0.005 million c. improves by $0.045 million d. improves by $0.055 million e. worsens by $0.005 million
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies.
If the
Question 1Select one:
a.
it is unchanged
b.
improves by $0.005 million
c.
improves by $0.045 million
d.
improves by $0.055 million
e.
worsens by $0.005 million
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