EBK PRINCIPLES OF ECONOMICS
8th Edition
ISBN: 8220103600453
Author: Mankiw
Publisher: CENGAGE L
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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.
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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.
Knowledge Booster
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