Refer to Figure 18-4. Under the Bretton Woods System of exchange rates, if the par exchange rate was $2 per pound in the figure above, and equilibrium persisted at $3, then a revaluation of the currency would have A B increased the price of British exports to the United States. increased the price of imports to Britain. C) led to a current account surplus. D) led to a balance of trade surplus.

In a setting of flexible exchange rates, suppose that the U.S. citizens decrease their import purchases from the United Kingdom at the same time that British citizens increase their purchases of stocks and bonds in the United States. The first action (the U.S. imports) by itself would lead to __________ of the dollar against the pound; the second action by itself would __________ of the dollar against the pound. A. an appreciation; lead to a depreciation B. an appreciation; also lead to an appreciation C. a depreciation; also lead to a depreciation D. a depreciation; lead to an appreciatio

Consider a small open economy producing a good which is an imperfect substitute for a foreign good. There are five categories of agents: firms, households, commercial banks, the central bank, and the government. The world price of the foreign good is taken as exogenous and normalized to unity. The nominal exchange rate, E, is flexible. The supply of the domestic good is given by (1) ys* y* (po)* Where Pº is the price of the domestic good and Y³=dY²³ /d PD > 0 Investment, I, is financed by bank loans and is defined as (2) 1=() Where is the loan rate and I' 0 is a constant coefficient. The demand for foreign deposits depends on the domestic and foreign interest rates: (5) ED* /F" =h(*). Where Fo" is the predetermined component of household financial wealth, Esthe nominal exchange rate at the beginning of the period, the interest rate on domestic deposits, į" the interest rate on foreign deposits, and he is a share function with partial derivatives ah/ai0. Household consumption spending,…

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Presently, the dollar is worth 140 Japanese yen in the spot market. The interest rate in Japan on 90-day government securities is 4 percent; it is 8 percent in the United States. a. If the interest-rate parity theorem holds, what is the implied 90-day forward exchange rate in yen per dollar? b. What would be implied if the U.S. interest rate were 6 percent?

An economy with a strong export sector has been accumulating large surpluses in its current account. While this indicates a competitive export sector, it also leads to appreciation of the domestic currency, making exports more expensive and imports cheaper. This situation could potentially harm domestic industries and create economic imbalances. The government is contemplating measures to manage the current account surplus and maintain economic stability.   The question is: In this scenario, the government's intervention should primarily focus on:   A) Continuously increasing the current account surplus   B) Managing the current account surplus to prevent economic imbalances   C) Restricting all forms of imports   D) Devaluing the domestic currency

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If a "Big Mac costs $4.00 in the United States and 200 yen in Japan, then the implied "purchasing-power-parity" exchange rate using the "Big Mac" is __________. If the actual exchange rate in the market is 120 yen = $1, then an economist would say that the actual Japanese yen is __________ in comparison with its "purchasing-power-parity" rate.

If to ship any amount of gold between New York If to ship any amount of gold between New York and London costs 1 percent of the value of the gold shipped, define the U.S. gold export point or upper limit in the exchange rate between the dollar and the pound (R = $/£). Why is this so? If to ship any amount of gold between New York

Draw the exchange market where dollars trade for British Pounds, with the equilibrium exchange rate at $1.18 and the equilibrium total amount of Pounds traded at 10 million. a> Assume that people in Britain become pessimistic about visiting, buying from, or investing in the United States. How will this market be affected? (i.e., which curve(s) will shift, and in which direction?) b> What will happen to the equilibrium quantity of Pounds traded after the event in part a? What will happen to the equilibrium exchange rate?