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For each prompt below, carefully and thoroughly follow the directions. For the graphs, be certain to accurately label all axes,
(a) Draw the foreign exchange market for euros in terms of pounds. Label the equilibrium exchange rate (e1), the equilibrium quantity (Q1), and the current exchange rate (ec). Assume that there is a shortage of the euro at the current rate.
(b) Assume the current exchange rate for the Chinese yuan in terms of the U.S. dollar is $0.20 per yuan. Based on this information, draw the foreign exchange market for dollars. Assume the market is in equilibrium.
The United States and Mexico are trading partners.
(c) Using side-by-side graphs of the exchange market for the U.S. dollar and the Mexican peso, show the impact of an increase in the demand for pesos.
(d) Based on the change indicated in part (c), is the U.S. dollar appreciating or
(e) If the United States began with a current account balance of zero, will the change in part (c) result in a current account surplus, deficit, or no change? Explain.
(f) Based on your answer to part (e), what must be the change to the capital and financial account of the United States?
(g) Assume the final exchange rate for the Mexican peso is $0.05. Calculate the exchange rate for the dollar in terms of the peso.
(h) Assuming efficient production and mutually beneficial trade, where would consumption for the United States and Mexico be relative to their respective
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- Assume that in the United States $1,000 wíll buy the same basket of goods that 20,000 pesos will buy in Mexico. The U.S. dollar/Mexican Peso exchange rate is $0.04 per peso. (a) Is the U.S. dollar overvalued or undervalued? Please explain. (b) Is the Mexican Peso overvalued or undervalued? Please explain. Consider the Purchasing Power Parity theory in your answer. (Only accept typing answers) (Only accept typing answers) (Only accept typing answers)arrow_forwardWhen you write an exchange rate in terms of how many units of a foreign currency it takes to buy one US dollar, we call that: a)a direct quote b) the real price c) an indirect quote d) a depreciationarrow_forwardQuestion 8 Suppose real GDP per capita in Sweden is 328,689 krona, and the price level in Sweden (measured using an international index) is 130. Suppose real GDP per capita in Botswana is 13,438 pula, and the price level (measured using that same index) in Botswana is 55. The market exchange rate is 1 pula = 0.84 krona. What would be the purchasing power parity adjusted ratio of real GDP per capita in Sweden to that in Botswana?arrow_forward
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