Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the United Kingdom. (Note: Throughout this analysis, assume that only the United States and the United Kingdom are relevant countries.) The United States' demand elasticity for imports The United Kingdom's demand elasticity for exports from the United States Given that the sum of these elasticities of demand is less than will worsen the U.S. trade position. Elasticity 0.2 0.3 1.0, the elasticity approach predicts that the depreciation of the U.S. dollar Use the elasticity approach for the remainder of this problem to confirm or refute its prediction about the U.S. trade position as a result of the dollar depreciation. Assume the prices of imports remain constant in terms of foreign currencies. This means the 6% depreciation of the dollar results in a 6% increase in the price of imported goods to the United States, but the dollar price of exports remains constant.

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CENGAGE MINDTAP
Homework (Ch 13)
3. Currency depreciation and the elasticity approach
Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the
United Kingdom. (Note: Throughout this analysis, assume that only the United States and the United Kingdom are relevant countries.)
The United States' demand elasticity for imports
The United Kingdom's demand elasticity for exports from the United States
Given that the sum of these elasticities of demand is less than
will worsen
the U.S. trade position.
Elasticity
0.2
Q Search this course
0.3
1.0, the elasticity approach predicts that the depreciation of the U.S. dollar
Use the elasticity approach for the remainder of this problem to confirm or refute its prediction about the U.S. trade position as a result of the dollar
depreciation.
Assume the prices of imports remain constant in terms of foreign currencies. This means the 6% depreciation of the dollar results in a 6% increase in
the price of imported goods to the United States, but the dollar price of exports remains constant.
Transcribed Image Text:CENGAGE MINDTAP Homework (Ch 13) 3. Currency depreciation and the elasticity approach Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the United Kingdom. (Note: Throughout this analysis, assume that only the United States and the United Kingdom are relevant countries.) The United States' demand elasticity for imports The United Kingdom's demand elasticity for exports from the United States Given that the sum of these elasticities of demand is less than will worsen the U.S. trade position. Elasticity 0.2 Q Search this course 0.3 1.0, the elasticity approach predicts that the depreciation of the U.S. dollar Use the elasticity approach for the remainder of this problem to confirm or refute its prediction about the U.S. trade position as a result of the dollar depreciation. Assume the prices of imports remain constant in terms of foreign currencies. This means the 6% depreciation of the dollar results in a 6% increase in the price of imported goods to the United States, but the dollar price of exports remains constant.
Homework (Ch 13)
Use the elasticities of demand from the previous table to compute the change in the quantity of imports demanded by U.S. consumers as a result of
the price increase. Then compute the change in the quantity of U.S. exports demanded by the United Kingdom as a result of the dollar depreciation.
Enter these values in the third column of the following table. (Hint: Use the minus sign to indicate a negative value, if necessary.)
Sector
Imports
Exports
Net Exports
Change in Dollar Price Change in Quantity Demanded Net Effect for the United States
(Percent)
(Percent)
(Percent)
6
0
You can compute the net effect of the 6% depreciation of the dollar for U.S. imports and exports by adding the percentage change in price and
quantity.
Compute the net effect on U.S. imports, exports, and net exports. Enter these values into the final column of the previous table.
Transcribed Image Text:Homework (Ch 13) Use the elasticities of demand from the previous table to compute the change in the quantity of imports demanded by U.S. consumers as a result of the price increase. Then compute the change in the quantity of U.S. exports demanded by the United Kingdom as a result of the dollar depreciation. Enter these values in the third column of the following table. (Hint: Use the minus sign to indicate a negative value, if necessary.) Sector Imports Exports Net Exports Change in Dollar Price Change in Quantity Demanded Net Effect for the United States (Percent) (Percent) (Percent) 6 0 You can compute the net effect of the 6% depreciation of the dollar for U.S. imports and exports by adding the percentage change in price and quantity. Compute the net effect on U.S. imports, exports, and net exports. Enter these values into the final column of the previous table.
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