MANKIW: PRINCIPLES OF MACROECONOMICS
8th Edition
ISBN: 9781337801782
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 18, Problem 6PA
(a)
To determine
Influence on US real exchange rate when proce increase more in the U.S..
(b)
To determine
Influence on US real exchange rate
(c)
To determine
Influence on US real exchange rate price remain the same in U.S..
(d)
To determine
Influence on US real exchange rate when U.S. nominal exchange rate declines.
Expert Solution & Answer
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Students have asked these similar questions
If there is a decrease in the desire of foreigners to purchase goods and services from the United States and a lower desire to invest in U.S. banks and businesses, then how would this affect the U.S. foreign exchange market?
A. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would depreciate.
B. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would appreciate.
C. The equilibrium quantity of foreign currency would increase and the U.S. dollar would depreciate.
D. The equilibrium quantity of foreign currency would increase and the U.S. dollar would appreciate.
In some cases, governments will intervene in the currency markets to incresae or decrease the value of the country's currency. Which of the following is an example of direct intervention in foreign exchange markets?
A.
The European Central Bank lowers interest rates to increase the value of the euro.
B.
The Japanese government purchasing JPY with USD to increase the value of the Japanese yen.
C.
China imposing barriers on imports from Europe.
D.
The U.S. lowers interest rates to decrease the value of the U.S. dollar.
Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected?
professors note
Supply and demand for currencies can be tricky, not least due to the confusing idea that what we are buying or selling is money itself!
Once you can wrap your mind around the idea that money is what is being obtained for other money, the next set of questions relates to what would or could make the price of one money change in terms of another.
To this effect, I'd recommend a primer from Investopedia: Six Factors That Influence Exchange Rates.
For your consideration in responding to this post, I suggest reading on how the Carry Trade has the capacity to magnify systemic risk.
Chapter 18 Solutions
MANKIW: PRINCIPLES OF MACROECONOMICS
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Similar questions
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- 1.1 What is the difference between the nominal exchange rate and the real exchange rate? When a newspaper article uses the phrase “the exchange rate,” is the article typically referring to the nominal exchange rate or the real exchange rate? 1.2 What is the difference between a direct quotation of an an exchange rate and an indirect quotation? If the exchange rate between the yen and the dollar changes from ¥80 = $1 to ¥90 = 1, has the yen appreciated or depreciated against the dollar? Has the dollar appreciated or depreciated against the yen? 1.3 Suppose that the euro falls in value relative to the dollar. What is the likely effect on European exports to the United States? What is the likely effect on U.S. exports to Europe? No plagiarism I’m really stuck it’s hard for me to understand please helparrow_forwardIf a French car costs 10,000 euros, a similar American car costs 15000 dollars, and a euro can buy 1.2 dollars. what is real exchange rates ( you may assume any currency as the “domestic currency”) If a French car costs 10,000 euros, a similar American car costs 15000 dollars, and a euro can buy 1.2 dollars. what is real exchange rates ( you may assume any currency as the “domestic currency”) ???arrow_forwardOther things the same, if the U.S. price level falls, then the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate rises. the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate falls. the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate rises. the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate falls.arrow_forward
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- a ) Consider India. Holding the exchange rate and the price of a Big Mac fixed, if purchasing power parity (PPP) held perfectly, the price of a Big Mac in India should be _________ rupees (round your answers to two decimal places).arrow_forwardSomeone please answer this question asapIn the U.S. a digital camera costs $150. The same camera in London sells for 60 pounds. If the exchange rate is 0.50 pounds per dollar, then which of the following is correct? A. The real exchange rate is greater than 1. A person in London with $150 could exchange them for pounds and have more than enough to buy the camera there. B. The real exchange rate is less than 1. A person in London with $150 could exchange them for pounds but then wouldn’t have enough to buy the camera. C. The real exchange rate is greater than 1. A person in London with $150 could exchange them for pounds but then wouldn’t have enough to buy the camera there. D. The real exchange rate is less than 1. A person in London with $150 could exchange them for pounds and have more than enough to buy the camera there.arrow_forwardSuppose that real interest rates increase across Europe. Explain how this development will affect U.S. net capital outflow. Then explain how it will affect U.S. net exports by using a formula from the chapter and by drawing a diagram. What will happen to the U.S. real interest rate and real exchange rate?arrow_forward
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