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. Explain how this increase in income in American GDP will affect the FOREX graph of 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. What would happen on loanable funds market in the United States with the supply of loanable funds, 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) What will happen to net exports in USA? Explain.
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. Explain how this increase in income in American GDP will affect the FOREX graph of 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)
(c) Assume instead household savings increased in the United States. What would happen on loanable funds market in the United States with the supply of loanable funds, 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) What will happen to net exports in USA? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images