ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Assume a country experiences favourable exchange rates. Examine the ONE main type of inflation this event can lead to. Illustrate your answer with the aid of a diagram.
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- Assume that Canada and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Canadian dollars (versus U.S. dollars), ____ the amount of Canadian dollars available for sale, and result in ____ inflation in Canada. a) upward; reduce; unchanged b) upward; increase; lower c) downward; reduce; lower d) downward; increase; unchanged e) None of the abovearrow_forwardThis question relates to the following news article New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall. ...a weak Kiwi dollar means importing is more expensive. "While we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low. the slower it will take for those inflation rates to fall." ASB senior economist Mark Smith said. Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c, a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly…arrow_forwardIf a country’s currency is overvalued in a fixed rate system, what can it do in the short-run?arrow_forward
- Explain how nominal exchange rate affects real exchange rate.arrow_forwardThe Purchasing Power Parity Theory' came into prominence in 1916 through the writings of А. J.M.Кeynes В. L.E.Von Miser Gustav Cassel C. D. F.A.von Hayekarrow_forwardSee for Yourself Case Taking a Bite Out of Purchasing Power Parity with the Big Mac Index In 1986, Pam Woodall introduced the Big Mac Index as an illustration of purchasing power parity (PPP), which is the theory that currencies will go up or down in value to keep their purchasing power consistent across countries. Initially a lighthearted guide to whether currencies are at their "correct" level, the Big Mac Index has grown into a global standard and is now featured in many economic textbooks and dozens of academic studies. Many refer to this as "Burgernomics." The Big Mac Index is based on the theory of PPP that says, in the long run, exchange rates should move toward the rate that would equalize the prices of an identical basket of goods and services in any two countries. This means that the price of an item in one currency should be the same price in any other currency, adjusted for that currency's exchange rate. The Big Mac Index was never intended as a precise gauge of currency…arrow_forward
- How will you form exchange rate forecasts based on the covered interest parity and purchasing power parity, respectively? Explain your answer with illustrative examples.arrow_forwardA country would always prefer to have a floating exchange rate regime in operation . Discuss .Answer:arrow_forwardUse #28 to answer question #29arrow_forward
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