Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 29, Problem 2SCQ
Suppose that political unrest in Egypt leads financial markets to anticipate a
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In mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros (the monetary unit in the European Union). If a U.S. dollar bought 0.55 pound sterling in 2006, what was the exchange rate between the U.S. dollar and the euro?
Currency traders expect the value of the U.S. dollars to fall by yearend. What effect will this have on the demand and supply of dollars in the foreign exchange market? Support your answer.
What happens to the exchange rate of a country’s currency when that country experiences high levels of inflation for an extended period of time? How will it affect the flow of that country’s currency in and out of the country? Explain your answers.
Chapter 29 Solutions
Principles of Economics 2e
Ch. 29 - How will a stronger euro affect the following...Ch. 29 - Suppose that political unrest in Egypt leads...Ch. 29 - Suppose U.S. interest rates decline compared to...Ch. 29 - Suppose Argentina gets inflation under control and...Ch. 29 - This chapter has explained that one of the most...Ch. 29 - A booming economy can attract financial capital...Ch. 29 - How would a contractionary monetary policy affect...Ch. 29 - A central bank can allow its currency to fall...Ch. 29 - Is a country for which imports and exports...Ch. 29 - What is the foreign exchange market?
Ch. 29 - Describe some buyers and some sellers in the...Ch. 29 - What is the difference between foreign direct...Ch. 29 - What does it mean to hedge a financial...Ch. 29 - What does it mean to say that a currency...Ch. 29 - Does an expectation of a stronger exchange rate in...Ch. 29 - Does a higher rate of return in a nations economy,...Ch. 29 - Does a higher inflation rate in an economy, other...Ch. 29 - What is the purchasing power parity exchange rate?Ch. 29 - What are some of the reasons a central bank is...Ch. 29 - How can an unexpected fall in exchange rates...Ch. 29 - What is the difference between a floating exchange...Ch. 29 - List some advantages and disadvantages of the...Ch. 29 - Why would a nation dollarize—that is, adopt...Ch. 29 - Can you think of any major disadvantages to...Ch. 29 - If a countrys currency is expected to appreciate...Ch. 29 - Do you think that a country experiencing...Ch. 29 - Suppose a country has an overall balance of trade...Ch. 29 - We learned that changes in exchange rates and the...Ch. 29 - If a developing country needs foreign capital...Ch. 29 - Many developing countries, like Mexico, have...Ch. 29 - What would make a country decide to change from a...Ch. 29 - A British pound cost 2.00 in U.S. dollars in 2008,...
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- What is the current (within the last 48 hours) exchange rate between the U.S. dollar and the Chinese Yuan?arrow_forwardSuppose U.S. interest rates decline compared to the rest of the world. What would be the likely impact on the demand for dollars, supply of dollars, and exchange rate for dollars compared to, say, euros?arrow_forwardwhy, according to some economists, should canada adopt the U.S dollar as its currency?arrow_forward
- If the money supply in Mexico is increasing much more rapidly than the money supply in the United States, holding other factors constant, what would you predict will happen to the nominal exchange rate between the Mexican peso and the United States dollar if purchasing-power parity (PPP) holds? Explain.arrow_forwardWhich of the following will lead to an appreciation of the U.S. dollar against the British pound? 1) an increase in U.S. demand for British imports 2) an increase in British demand for U.S. imports 3) a decrease in British demand for U.S. assets 4) an increase in British interest ratesarrow_forwardSome countries, many being developing countries, peg their currency to the US dollar. What effect does a rapid appreciation or devaluation of the dollar have on those countries? If you were an exporter from an emerging country to the United States would you prefer a strong or weak dollar?arrow_forward
- Travis takes two trips to Ecuador. On his first trip, he finds that one US dollar is worth 25000 Ecuadorian Sucre. On his return trip, he finds that the dollar is now worth 24000 Ecuadorian Sucre. What is a likely result of this change in exchange rates?arrow_forwardSuppose Argentina gets inflation under control and the Argentine inflation rate decreases substantially. What would likely happen to the demand for Argentine pesos, the supply of Argentine pesos, and the peso/U.S. dollar exchange rate?arrow_forwardWhich factor that influences currency values generally only affects a few currencies such as the U.S. dollar and the British pound Speculation Fluctuations in the amount of currency in the economy OA storage of wealth in uncertain economic conditions Increased desire for foreign productsarrow_forward
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