Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 6, Problem 6E
To determine
The consequences that would be faced by a free floating Y and A dollar following a ten year period of domestic
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If the domestic prices for traded goods rose 40 percent over 10 years in China and 25 percent over those same 10 years in the United States, what would happen to a freely floating Chinese yuan/U.S. dollar exchange rate? Why?
If the domestic prices for traded goods rose 50 percent over 10 years in Japan and 100 percent over those same 10 years in United States, what would happen to the yen/dollar exchange rate? Why?
In 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…
Chapter 6 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- We noted that in 1900, the fixed exchange rate between the British pound and the U.S. dollar was 1 pound equals $5. What is the exchange rate today? Whose currency has gained the most in purchasing power? What caused this dramatic change in the exchange rate?arrow_forwardWhat is the current (within the last 48 hours) exchange rate between the U.S. dollar and the Chinese Yuan?arrow_forwardHow would I find the actual exchange rate to answer the bottom part of the data shown.arrow_forward
- Explain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.arrow_forwardDoes a higher inflation rate in an economy, other things being equal, affect the exchange rate of its currency? If so, how?arrow_forwardDescribe how a change in exchange rate will affect a firm. Explain what happened to price and quantity. How can a firm profit from future shifts in the exchange rate? How do you predict future changes in the exchange rate?arrow_forward
- please do this for the country China.arrow_forwardCoffee grown in Guatemala is priced at 17 Guatemalan quetzal per pound (Guatemalan quetzal, or GTQ, is the currency of Guatemala). Comparable coffee grown in the U.S. is priced at $8.40 per pound. One Guatemalan quetzal trades for $0.13 in the foreign exchange market. Find the real exchange rate from the perspective of the United States and from the perspective of Guatemala, and determine which country's coffee is more competitively priced? Instructions: Enter your responses rounded to two decimal places. Real exchange rate from the perspective of the U.S. is Real exchange rate from the perspective of Guatemala is Coffee is more competitively priced in [Guatemala Varrow_forwardDescribe how a change in the exchange rate affected your firm. Explain what happened to your price and quantity. How can you profit from future shifts in the exchange rate? How do you predict future changes in the exchange rate?arrow_forward
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