Figure: Foreign Exchange Markets Dwon D, Quee Qs Reference: Ref 12-3 (Figure: Foreign Exchange Markets) Look at the figures in the Foreign Exchange Markets graphs. Suppose there was an increase in the domestic level of Government spending. The resulting changes would be: O an increase in the demand for dollars and and a fall in the supply of foreign currency. a decrease in the supply of dollars and a rise in the supply of foreign currency. an increase in the of supply of dollars and an increase in the demand for foreign currency.

Figure: Foreign Exchange Markets Dwon D, Quee Qs Reference: Ref 12-3 (Figure: Foreign Exchange Markets) Look at the figures in the Foreign Exchange Markets graphs. Suppose there was an increase in the domestic level of Government spending. The resulting changes would be: O an increase in the demand for dollars and and a fall in the supply of foreign currency. a decrease in the supply of dollars and a rise in the supply of foreign currency. an increase in the of supply of dollars and an increase in the demand for foreign currency.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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11. Suppose that the nominal exchange rate between the euro and the British pound was €0.80 per £1.0 last year, one unit of German output cost €4.0 last year, and one unit of British output cost £6.0 last year. a. What was last year's real exchange rate between the U.K. and Germany, expressed as the cost of British output (i.e. - the quantity of German output that exchanges for 1 unit of British output)? In which country were goods more expensive last year? b. Suppose that between last year and this year the British pound depreciated by 25% against the euro (a 25% decrease in the number of euros required to buy 1 pound). If the price of goods in the U.K and Germany are unchanged from last year, what is this year's new real exchange rate? In which country are goods more expensive this year? Now suppose, instead, that between last year and this year, the pound depreciated by 25% against the euro and Germany experienced a 40% decrease in its price level (a 40% decrease in the number of…
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Explain how the following three factors affect the Exchange rate Et in short-run in terms of Domestic Currency (measured in USD). Please illustrate using Diagram. (a) Increase in Foreign Interest Rate i F (b) Expected Import Demand (c) Expected Domestic Price Level
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(A). Diagram 2: The DD -AA model Exchange rate, E DD E AA Output, Y Use the DD-AA model to examine the effects of an one-time rise in the foreign price level, P* given that the future exchange rate Ee falls immediately in proportion to P*. If the economy is initially in internal and external balance, will its position be disturbed by such a rise in P*?
2. Suppose a currency is temporarily undervalued by a fixed exchange rate system, such as the international gold standard. Let that currency be the US dollar, and expressed in terms of British pounds. a. Show this disequilibrium using a supply and demand graph. Be sure to carefully label your axes. b. Clearly explain how one could profit by arbitraging in dollars using a bill of exchange. If it helps, you can use a numerical example.
1. Pricing of foreign goods