Essentials of Economics
4th Edition
ISBN: 9781464186653
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 20, Problem 12P
To determine
The Appreciation or
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In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa.
Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world.
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The___________exchange rate between the currencies of two countries is the rate at which the currency of one country needs to be converted into that of a second country to ensure that a given amount of the first country's currency will purchase ______________quantity of goods and services in the second country as it does in the first. purchasing power-parity (PPP), the same purchasing power-parity (PPP), a larger market, the same market, a smaller
Chapter 20 Solutions
Essentials of Economics
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- Suppose that yesterday, the U.S. dollar-Japanese yen exchange rate was $1=¥0.553546. The price of one Japanese yen in terms of a U.S. dollar was ___ . Suppose that today the U.S. dollar-Japanese yen exchange rate falls to $1=¥0.533585 for one dollar. This means that between yesterday and today, the U.S. dollar has ___ against the Japanese yen. The price of a Mexican peso in terms of the U.S. dollar is now ___ .arrow_forwardThe U.S. dollar exchange rate increased from $0.96 Canadian in June 2011 to $1.03 Canadian in June 2012, and it decreased from 81 Japanese yen in June 2011 to 78 yen in June 2012. 1. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the yen? 2. What was the value of the Canadian dollar in terms of U.S. dollars in June 2011 and June 2012? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012? 3. What was the value of 100 yen in terms of U.S. dollars in June 2011 and June 2012? Did the yen appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?arrow_forwardWho would demand U.S. dollars in the foreign exchange market? U.S. firms and households wishing to purchase foreign goods and services Foreigners wishing to purchase U.S goods and services U.S. households wishing to purchase U.S. goods and servicesarrow_forward
- When you write an exchange rate in terms of how many units of a foreign currency it takes to buy one US dollar, we call that: a)a direct quote b) the real price c) an indirect quote d) a depreciationarrow_forwardBased on the table provided, answer the following questions: Compute the U.S. dollar–yen exchange rate E$/¥ and the U.S. dollar–Canadian dollar exchange rate E$/C$ on January 20, 2016, and January 20, 2015. What happened to the value of the U.S. dollar relative to the Japanese yen and Canadian dollar between January 20, 2015, and January 20, 2016? Compute the percentage change in the value of the U.S. dollar relative to each currency using the U.S. dollar–foreign currency exchange rates you computed in (a). Using the information in the table for January 20, 2016, compute the Danish krone–Canadian dollar exchange rate Ekrone/C$.arrow_forwardView the data below for the exchange rate between the US dollar and the Japanese yen. How many yen could you get per dollar at the earliest date shown on the chart? Explain. How many yen could you get per dollar at the most recent date shown on the chart? Explain. Has the dollar appreciated or depreciated in value over time? Explain.arrow_forward
- An appreciation of the dollar against all currencies in the foreign exchange market would result in all of the following, except: a) a decrease in the dollar prices paid by U.S. importers. b) an increase in the cost of vacations in Florida for Japanese tourists. c) foreign holidays for U.S. residents to be less expensive. d) an increase in the foreign currency prices paid for U.S. exports. e) an increase in the demand for U.S. exports.arrow_forwardWhich of the following is included in a nation's current account? a) Purchases of foreign assets b) Borrowings from abroad c) Foreign purchases of U.S. financial assets d) Investment income receipts e) Purchases of foreign real propertyarrow_forwardChanges in the price of U.S $ from 0.89 euros (E0) to 0.95 euros (E1) represents either a currency appreciation or depreciation. If EO is the old price of U.S. $ and E1 is the new price, U.S. $ has [Please review the exchange rate slides before attempting.] A) appreciated by 4.59%. B) appreciated by 6.70%. C)appreciated by 7.70%. D) depreciated by 6.70%arrow_forward
- If there was an sudden change in exchange rates that resulted in fewer US Dollars being required to buy a Euro, you could expect the dollar to depreciate quicker than the Euro European travel to America to increase Europeans to buy more American products American to buy more European productsarrow_forwardConsider the following annual transactions in Canada's current account. If Canadian exports of goods and services are $40 billion, imports of goods and services are $28 billion, net investment income is $5 billion, transfers by Canadians to foreigners are $2 billion and transfers from foreigners to Canadian citizens are $2 billion, then the current account balance (as an integer value) is?arrow_forwardSuppose that the U.S. dollar appreciates against the Japanese Yen. What will occur as a result? purchasing power parity will begin to hold U.S. exports to Japan will become cheaper and increase, imports from Japan to the U.S. will become more expensive and decline U.S. currency becomes over-valued relative to Japanese currency U.S. exports to Japan will become more expensive and decline, imports from Japan to the U.S. will become cheaper and increasearrow_forward
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