Economics (Book Only)
12th Edition
ISBN: 9781285738321
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 35, Problem 14QP
To determine
Change in
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Why does the decline in value of a certain currency cause imports to be expensive and exports cheaper, resulting in cost-push and demand-pull inflation?
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Chapter 35 Solutions
Economics (Book Only)
Ch. 35.2 - Prob. 1STCh. 35.2 - Prob. 2STCh. 35.2 - Prob. 3STCh. 35.2 - Prob. 4STCh. 35.3 - Prob. 1STCh. 35.3 - Prob. 2STCh. 35.3 - Prob. 3STCh. 35.3 - Prob. 4STCh. 35 - Prob. 1VQPCh. 35 - Prob. 2VQP
Ch. 35 - Prob. 3VQPCh. 35 - Prob. 4VQPCh. 35 - Prob. 5VQPCh. 35 - Prob. 1QPCh. 35 - Prob. 2QPCh. 35 - Prob. 3QPCh. 35 - Prob. 4QPCh. 35 - Prob. 5QPCh. 35 - Prob. 6QPCh. 35 - Prob. 7QPCh. 35 - Prob. 8QPCh. 35 - Prob. 9QPCh. 35 - Prob. 10QPCh. 35 - Prob. 11QPCh. 35 - Prob. 12QPCh. 35 - Prob. 13QPCh. 35 - Prob. 14QPCh. 35 - Prob. 15QPCh. 35 - Prob. 16QPCh. 35 - Prob. 1WNGCh. 35 - Prob. 2WNGCh. 35 - Prob. 3WNGCh. 35 - Prob. 4WNGCh. 35 - Prob. 5WNG
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- The % increase in the nominal exchange rate equals the % increase in the real exchange rate ......... the ......... inflation rate .......... the .......... inflation rate. a.plus/ foreign / minus / domestic b.minus / foreign / minus / domestic c.plus/ domestic / minus / foreign d.minus / domestic/plus / foreign e.plus/ domestic/plus/ foreignarrow_forwardIn an economy the price of a basket of goods is 84 euros. In another economy the price of the same basket of goods is 234 crowns (the name of the local currency). Calculate the crown/euro PPP exchange rate. Answerarrow_forwardExchange rate regimes: Suppose output is above the natural level of output. In a fixed exchange rate regime, explain the two ways the economy can return to the natural level of output and provide a graphical illustration.arrow_forward
- Use #28 to answer question #29arrow_forwardinflation plays a major role determine whether a currency is appreciating or depreciating true falsearrow_forwardGiven your understanding of exchange rate regimes, carefully explain why it is impossible for a nation to have free capital flows, a fixed exchange rate and an independent monetary policy.arrow_forward
- A country with fixed exchange rate can always raise its policy interest rate to curb down inflation.” – True or false? Explain.arrow_forwardAn exchange rate is the domestic price to purchase one unit of a foreign currency. For example, how much does it cost in Canadian dollars to buy one US dollar? There are various economic theories to predict exchange rates. The simplest theory is known as the Law of One Price or also known as Absolute Purchasing Power Parity (PPP). Use absolute PPP and the price of a Big Mac in different countries to complete the table below and to predict whether the local currency is over or undervalued compared to the US dollar. Country USA Canada Saudi Arabia Brazil Italy Source: The Economist Big Mac Price in Local Currency $4.62 $5.54 SR 10 R$ 12 €3.75 Current Market Exchange Rate e 1.10 3.75 2.27 0.74 Exchange Rate Predicted by PPP and Big Mac ê According to the table above, an arbitrageur in Brazil could make money by If the Big Mac Index were accurate for other tradeable goods and services, Brazil's AD curve would O Local Currency should... the US. 수 + 8°C. Clouarrow_forwardConsider a floating exchange rate regime. How does higher government purchases affect output and interest rate in equilibrium? Answer and discuss with the help of the diagram given (e.g., show what curves will shift, label curves and axes correctly). Consider a fixed exchange rate regime. How does higher government expenditure affect output and interest rate in equilibrium? Discuss with the help of the diagram (e.g., show what curves will shift, label curves and axes correctly). Are your conclusions in (1) and (2) consistent with Mankiw's conclusion using the IS-LM diagram drawn in exchange rate-Output axes? Discuss.arrow_forward
- What effect does a high exchange rate have on imports, exports, and that country's production?arrow_forwardIn 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…arrow_forwardPPP and IRP are different because one always deviates from parity and other does not ever deviate one includes inflation rates and other includes interest rates one holds for single country and other holds for both countries one includes inflation rates and other includes exchange ratesarrow_forward
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