MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 19, Problem 2TY
a.
To determine
To describe: The affect on US balance of payments, if the summer is spent travelling in Europe supposing that exchange rate remains fixed.
b.
To determine
To describe: The affect on the US balance of payments if a $20 birthday present is received from Canada from a relative supposing exchange rates are fixed.
c
To determine
To describe: The affect on the US balance of payments, if a new Honda is purchased from Japan supposing exchange rates remains fixed.
d.
To determine
To describe: The affect on US balance of payments, if a new Honda is purchased from Ohio, supposing exchange rates remains fixed.
e
To determine
To describe: The affect on US balance of payments, if stock is sold in Tokyo stock exchange supposing exchange rates remains fixed.
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In 1961, Charles de Gaulle decided he did not want the French franc to be considered as a second-rate currency, so he chopped two zeros off the value of the franc, which meant the exchange rate was approximately FF5/$ instead of FF500/$ (he also ordered that the $ key on IBM punchcard machines be replaced by the FF symbol). This had no immediate impact on any domestic or international transactions, but was supposed to convince the French people to put inflation behind them and keep their currency in line with the Dmark and the British pound. Whether or not this change in currency values made any difference, the relative inflation rate did slow down and the value of the FF did rise relative to the dollar over the next two decades. At the same time, the current account balance improved slightly. Based on these factors, explain what happened to the growth rate, show how the NX and NFI curves must have shifted, and describe the underlying economic developments.
Differentiate between foreign exchange and the foreign exchange rate.
Describe 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?
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