As the Japan/U.S. exchange rate falls from 100 yens per dollar to 90 yens per dollar, 1) Ford becomes cheaper in the U.S. 2) Ford becomes cheaper in the Japan. 3) Ford becomes more expensive in Japan. 4) Ford becomes more expensive in the U.S.
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- The following graph shows the market for euros in terms of dollars. The market is initially in equilibrium at $2.00 per euro and 8 billion euros. Suppose an economic downturn in the United States leads to a drop in American incomes, causing imports from Europe to decline. On the following graph, show the effect in the market for euros of an economic downturn in the United States that leads to a drop in European incomes. DOLLAR PRICE OF EUROS 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0 2 Supply of Euros Demand for Euros 4 6 8 10 12 QUANTITY OF EUROS (Billions of euros) 14 Under a system of flexible exchange rates, the dollar will per euro. 16 Increase income taxes in the United States. Lower interest rates by way of monetary policy. Demand for Euros Subsidize the production of certain U.S. exports to Europe. Supply of Euros ? Now suppose that the United States maintains a fixed exchange rate of $2.00 per euro. Which of the following U.S. government policies would keep the balance-of-payments…The following graph shows the market for euros in terms of dollars. The market is initially in equilibrium at $1.00 per euro and 4 billion euros. Suppose an economic downturn in the United States leads to a drop in American incomes, causing imports from Europe to decline. On the following graph, show the effect in the market for euros of an economic downturn in the United States that leads to a drop in European incomes. DOLLAR PRICE OF EUROS 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0 0 1 Supply of Euros D₂ D₁ 2 3 4 5 6 QUANTITY OF EUROS (Billions of euros) 7 8 Under a system of flexible exchange rates, the dollar will depreciate $1.25 per euro. Sell dollars for euros in the foreign exchange market. Lower interest rates by way of monetary policy. Demand for Euros Subsidize the production of certain U.S. exports to Europe. Supply of Euros ? Now suppose that the United States maintains a fixed exchange rate of $1.00 per euro. Which of the following U.S. government policies would keep the…The following graph depicts the supply schedule for euros. Hint: You can drag the black point (cross symbol) to various positions on the graph to see the values of the coordinates on the graph. You will not be graded for any changes you make to the graph. VALUE OF EURO (U.S. dollars per euro) 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY OF EUROS (Billions) At an exchange rate of 1.2 per euro, the quantity of euros supplied is of euros supplied is + ? billion euros, while at an exchange rate of 1.8 per euro, the quantity billion euros. This confirms that the supply schedule for euros is sloping.
- The following graph depicts the supply and demand curves for U.S. dollars in the foreign exchange market. Suppose that Japan puts quotas on all U.S. imports. On the graph, shift either the supply of dollars curve, the demand for dollars curve, or both curves to best reflect the given scenario. PRICE (Yen per dollar) S D QUANTITY OF DOLLARS (Millions per day) If Japan puts quotas on all U.S. Imports, the U.S. dollar 6.4.3) Calculate the change in net barter terms of trade for country B given that the price of exports has increased 25%, export volume grew 10% and the price of imports increased 30%. Is country B better or worse off?Suppose you independently contract as a software developer living in the United States, and you just sold a license for your latest program to a Belgian consumer for EUR 5,000. Determine the effects of this transaction on exports, imports, and net exports in the U.S. economy, and enter your results in the following table. If the direction of change is "No change," enter "0" in the Magnitude of Change column. Hint: The magnitude of change should always be positive, regardless of the direction of change. Exports Imports Net Exports Direction of Change Magnitude of Change (Euros) in U.S. net exports is matched by in U.S. net capital Because of the identity equation that relates to net exports, the outflow. Which of the following is an example of how the United States' net capital outflow might be affected in this scenario? Check all that apply. You store the euros in your safety deposit box at home. You purchase EUR 5,000 worth of stock in a Belgian corporation. You buy EUR 5,000 worth of…
- The following questions focus on the exchange rate between the euro and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one krone. Suppose an economic downturn in Denmark causes Danish incomes to decrease, while European incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal. Supply of Kroner Demand for Kroner Supply of Kroner Demand for Kroner QUANTITY OF KRONER The decrease in Danish incomes causes the Danish krone to relative to the euro and causes the euro to relative to the Danish krone. Suppose the price level in the euro zone rises by 12%, while the price level in Denmark remains the same. That is, the inflation rate in the euro zone is higher than in Denmark. EUROS PRICE OF KRONERAs the price level rises, the interest rate rises, so the supply of dollars in the market for foreign currency exchange shifts right. rises, so the supply of dollars in the market for foreign currency exchange shifts left. falls, so the supply of dollars in the market for foreign currency exchange shifts left. falls, so the supply of dollars in the market for foreign currency exchange shifts right.The Big Mac index was introduced by The Economist magazine in 1986, as a playful example to introduce the concept of purchase power parity (PPP) and under/overvaluation of currencies. The PPP rates are usually compiled based on consumer baskets of comparable quality. The problem is that goods in different economies are hardly comparable. The customer basket contains only one good which is made everywhere in exactly the same way – McDonald’s Big Mac. You might think that is an oversimplification, but in fact the Big Mac Index has been widely used for comparing currencies ever since it was first published. Explore the concept behind the Big Mac index and critically assess the importance of comparability of goods in various economies.
- Suppose the fixed exchange rate is $0.50 per mark. Suppose that a recession in the United States leads to a reduction in imports from Germany. On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (cross symbol) to indicate the imbalance. 1.00 Supply for marks Demand for marks 0.75 Supply for marks 0.50 The Imbalance 0.25 Demand for marks 4 12 16 QUANTITY OF MARKS (Millions) A recession in the United States leads to a reduction in imports from Germany. As a result, the demand for German marks causing a million imbalance in the U.S. balance of payments. Under the gold standard, how is the fixed exchange rate maintained in the face of the balance-of-payments imbalance shown on the previous graph? The IMF must lend marks to the United States with which to buy dollars. The IMF must lend dollars to Germany with which to buy marks. Gold must flow from the United States to Germany. o Gold must flow from Germany to the United…Suppose that the Japanese yen rises against the U.S. dollar-that is, it will take more dollars to buy a given amount of Japanese yen. Explain why this increase simultaneously increases the real price of Japanese cars for U.S. consumers and decreases the real price of U.S. automobiles for Japanese consumers. dollars, and the purchase of a U.S. As the value of the yen grows relative to the dollar, the purchase of a Japanese automobile priced in yen requires automobile priced in dollars requires yen. more fewerSuppose 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