Principles of Macroeconomics (11th Edition)
Principles of Macroeconomics (11th Edition)
11th Edition
ISBN: 9780133023671
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
Question
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Chapter 20, Problem 2P

(a)

To determine

The shift in demand curve to the right.

(a)

Expert Solution
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Explanation of Solution

The phenomena that may shift the demand curve to the right includes an increase in the British interest rate or the U.S. price level, a decrease in the U.S interest rate  or the British price level.

(b)

To determine

The shift in supply curve to left.

(b)

Expert Solution
Check Mark

Explanation of Solution

All of it (an increase in the British interest rate or the U.S. price level, a decrease in the U.S interest rate or the British price level.) causes the supply curve to shift to the left.

(c)

To determine

The effect on the balance of trade.

(c)

Expert Solution
Check Mark

Explanation of Solution

An increase in the British interest rate or a decrease on the U.S. interest rate will decrease the British’s balance of trade as the British goods become relatively more expensive. The change in the interest rate would increase the value of pound and hence will shrink the surplus or increase trade deficit.

Economics Concept Introduction

Exchange rate: The exchange rate is the rate by which one country’s currency value is expressed with other country’s currency.

Float exchange rate system: It is the current exchange rate system under which the value of most currencies is determined by demand and supply.

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