Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 29, Problem 1.2P
To determine
Impact of stock market crash on different economies.
Expert Solution & Answer
Explanation of Solution
Asia experienced stock markets crash in 1997, as a result, Hong Kong’s was down nearly 30 percent, Thailand’s was down nearly 62 percent and Malaysia was also down around 60 percent. Situation was same in Japan and Korea. Such large drops negatively affect the wealth of households in these countries. Therefore people starts to spend less. As a result consumption decreases which leads to decrease in
These events also affect U.S economy very badly. Mainly, there are several Americans are invested in foreign countries. Therefore when the stock markets collapsed in Asia, would create a modest wealth effect in the U.S market. Another problem faced by the U.S economy was, when the recession occurs in the foreign countries mean that, they would reduce the consumption from the U.S economy as a result, the export demand of U.S falls. Finally, one of the main problem was import prices from Asian countries would fall when these countries compete with U.S firms.
Economics Concept Introduction
Concept introduction:
Stock market: Stock market can be defined as the place where the buying and selling of equities or stocks of publically held companies.
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Students have asked these similar questions
All of the following, except one, could have caused the increase in aggregate demand from AD1 to AD2. Which is the exception?
Multiple Choice
An increase in U.S. income received by Canadians.
A lower Canadian dollar exchange rate.
An increase in the number of American tourists in Canada.
More American direct investment in Canada.
Less American portfolio investment in Canada.
Assume the economy is in equilibrium. If the interest rate falls, what sequence of events will return
the economy to equilibrium?
Bond prices rise, causing foreign investment to flow in, causing the exchange rate to fall (appreciate).
Savers save more to replace lost interest earnings, consumption falls, imports rise, and the trade balance
falls, causing output to fall.
Total spending rises as investors move funds into foreign assets, causing the exchange rate to rise
(depreciate), and the trade balance increases, causing output to rise.
Total spending falls, unemployment rises, government transfers increase, inflation rises, and the exchange
rate falls (appreciates).
You are told that Canada conducts much international trade with
the United Kingdom. However, the financial and investment
flows between the two countries are minimal. Some information
has been collected about the state of the economy and the
future expectations of Canada and the United Kingdom. First,
interest rates in Canada have increased but no change has been
observed in the U.K. Second, inflation in Canada has increased
but decreased in the U.K. Finally, fearing future instability, the
Bank of Canada intervened in the foreign exchange market by
exchanging a trivial amount of British pounds to purchase a very
small amount of Canadian dollars.
Discuss clearly how the Canadian dollar will change based on
the information provided here. Discuss the effects on demand
and supply.
Chapter 29 Solutions
Principles of Economics (12th Edition)
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