Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 32, Problem 5PA
Subpart (a):
To determine
The impact of new taste of wine developed.
Subpart (b):
To determine
The impact of new taste of wine developed.
Subpart (c):
To determine
The impact of new taste of wine developed.
Expert Solution & Answer
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Suppose 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.
The 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.
1.8
Suppose that the exchange rate falls from 84 yen per U.S. dollar to 71 yen per U.S. dollar.
What is the effect of this change on the quantity of U.S. dollars that people plan to sell in the foreign exchange market?
The quantity of U.S. dollars that people plan to sell in the foreign exchange market
A. decreases and the supply curve of U.S. dollars shifts leftward
B. increases and the supply curve of U.S. dollars shifts rightward
C. increases and a movement up along the supply curve for U.S. dollars occurs
D. decreases and a movement down along the supply curve of U.S. dollars occurs
Chapter 32 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Knowledge Booster
Similar questions
- In 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_forwardHow would I find the actual exchange rate to answer the bottom part of the data shown.arrow_forwardIf 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.arrow_forward
- 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.arrow_forwardU.S. DOLLARS PER POUND 1. Equilibrium rate of exchange Suppose that, initially, the foreign exchange market between the United States and Great Britain is in equilibrium. Suppose that preferences for goods made in Great Britain change in the United States, causing U.S. consumers to purchase fewer goods and services made in Great Britain. Illustrate how this change affects the market for pounds by shifting one or both of the curves on the following graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Supply Demand --- Supply K POUNDS Demand This change in the market for pounds causes the U.S. dollar to change in the demand for foreign currency for the United States? O U.S. firms face less pressure to keep prices low. O U.S. inflation is higher due to higher prices on British goods. O U.S. inflation is lower due to lower…arrow_forwardWhich of the following affects the demand for U.S. dollars in the foreign exchange market? Multiple Choice domestic demand for U.S. stocks domestic demand for U.S.-made cars foreign demand for U.S. exports European demand for eurosarrow_forward
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