Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (a) Assume real income increased in the United States. Draw a correctly labeled graph of the foreign exchange market for the yen, and show the effect of the increased real income in the United States on the equilibrium exchange rate for the yen. (b) Will each of the following increase, decrease, or stay the same as a result of the increase in the United States real income? (i) Japan's net exports. Explain. (ii) Unemployment in Japan. Explain. (iii) Japan's long-run aggregate supply (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loar. funds market in the United States, and show the effect of the
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. Japan and the United States are major trading partners and the exchange rate between the Japanese yen and the United States dollar is determined in a flexible foreign exchange market. (a) Assume real income increased in the United States. Draw a correctly labeled graph of the foreign exchange market for the yen, and show the effect of the increased real income in the United States on the equilibrium exchange rate for the yen. (b) Will each of the following increase, decrease, or stay the same as a result of the increase in the United States real income? (i) Japan's net exports. Explain. (ii) Unemployment in Japan. Explain. (iii) Japan's long-run aggregate supply (c) Assume instead household savings increased in the United States. Draw a correctly labeled graph of the loar. funds market in the United States, and show the effect of the
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Include correctly labeled diagrams, if useful or required, in
explaining your answers. A correctly labeled diagram must
have all axes and curves clearly labeled and must show
directional changes. If the question prompts you to
"Calculate," you must show how you arrived at your final
answer.
Japan and the United States are major trading partners and
the exchange rate between the Japanese yen and the United
States dollar is determined in a flexible foreign exchange
market.
(a) Assume real income increased in the United States. Draw
a correctly labeled graph of the foreign exchange market for
the yen, and show the effect of the increased real income in
the United States on the equilibrium exchange rate for the
yen.
(b) Will each of the following increase, decrease, or stay the
same as a result of the increase in the United States real
income?
(1) Japan's net exports. Explain.
(ii) Unemployment in Japan. Explain.
(iii) Japan's long-run aggregate supply
(c) Assume instead household savings increased in the
United States. Draw a correctly labeled graph of the loar
funds market in the United States, and show the effect of the
Transcribed Image Text:(b) Will each of the following increase, decrease, or stay the
same as a result of the increase in the United States real
income?
(i) Japan's net exports. Explain.
(ii) Unemployment in Japan. Explain.
(iii) Japan's long-run aggregate supply
(c) Assume instead household savings increased in the
United States. Draw a correctly labeled graph of the loanable
funds market in the United States, and show the effect of the
increase in household savings on the equilibrium real interest
rate.
(d) Based on the change in the equilibrium real interest rate
identified in part (c), what will happen to financial capital
flows to the United States?
(e) Based on your answer to part (d), what will happen to the
international value of the dollar in the foreign exchange
market? Explain.
(f) Based on your answer to part (e), will the Federal Reserve
buy or sell yen in the foreign exchange market to stabilize the
dollar/yen exchange rate? Explain.
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