Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 31, Problem 6PA
Sub part (a)
To determine
Influence on US real exchange rate in different situations.
Sub part (b)
To determine
Influence on US real exchange rate in different situations.
Sub part (c)
To determine
Influence on US real exchange rate in different situations.
Sub part (d)
To determine
Influence on US real exchange rate in different situations.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
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 31 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Knowledge Booster
Similar questions
- Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?arrow_forwardIn 2001, the United Kingdoms economy exported goods worth 192 billion and services worth another 77 billion. It imported goods worth 225 billion and services worth £66 billion. Receipts of income from abroad were 140 billion while income payments going abroad were 131 billion. Government transfers from the United Kingdom to the rest of the world were 23 billion, while various U.K government agencies received payments of 16 billion from the rest of the world. Calculate the U.K. merchandise trade deficit for 2001. Calculate the current account balance for 2001. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001.arrow_forwardThe graph shows the demand curve for U.S. dollars. Draw a new demand curve that shows the effect of an increase in the world demand for U.S. exports. Label it. A change in the expected future exchange rate changes the demand for U.S. dollars and a change in the world demand for U.S. exports changes the demand for U.S. dollars A. today; in the future B. in the future; today C. in the future; in the future D. today; today 160 140- 120- 100- 80- 60- 40+ Exchange rate (yen per U.S. dollar) Do 1.3 1.5 1.6 1.7 1.4 Quantity (trillions of U.S. dollars per day) >>> Draw only the objects specified in the question. 1.8arrow_forward
- 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_forwardAccording to the Economist ("Big Mac Currencies," The Economist, April 17th 1993), in 1993, the average price of a Big Mac in the U.S. was $2.28. In Japan, Big Mac fans had to fork out ¥391 for this feast. However, in the currency market on April 13th, 1993, yenholders could buy a dollar for ¥113. What was real exchange rate for the $ against the ¥?arrow_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_forward
- Describe how a change in the exchange rate may affect the pricing of a company. How can the company profit from future shifts in the exchange rate?arrow_forwardConsider the exchange rates of U.S. dollars to yen. Using figures, explain the following: 1. Changes in the interest rate and the exchange rate when the Bank of Japan reduces the money supply. 2. Changes in the interest rate and the exchange rate when income increases in Japan.arrow_forwardSuppose the French suddenly develop a strong taste for California wines. Answer the following questions in words and with a diagram. a. What happens to the demand for dollars in the market for foreign-currency exchange? b. What happens to the value of the dollar in the market for foreign-currency exchange? What happens to U.S. net exports? с.arrow_forward
- 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
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning