Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421193
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 19, Problem 3.4P
Subpart (a):
To determine
To show graphically the
Subpart (b):
To determine
To determine the impact of a contractionary
Subpart (c):
To determine
To determine the impact of expansionary fiscal policy on the exchange rate.
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In the foreign exchange market, the supply curve for the dollar is upward sloping. That is, when the exchange rate (foreign
currency per dollar) increases, the quantity of dollars supplied increases.
Assuming actors have not yet had time to change their expectations about the future exchange rate, when the exchange rate
increases, why is the supply curve of dollars in the foreign exchange market upward sloping?
Foreign goods and services are less expensive to import.
U.S. firms profit more by selling their goods and services domestically rather than selling to foreigners.
The expected profitability of purchasing a dollar today to sell in the future rises.
U.S. goods are less expensive for foreigners to purchase.
Suppose that the Federal Reserve cannot convince the public of its commitment to fight inflation in the United States in the near future. a) What would be the effect on the expected appreciation of the U.S. dollar? b) What would be the effect on the spot exchange rate for the U.S. dollar? Explain your answer using a graph.
With the strengthening of the yen against the U.S. dollar in 2010, Japan’s central bank did not take any action. A leading Japanese politician has called on the central bank to take actions to weaken the yen, saying it will help exporters in the short run and have no long-run effects.
a. What is Japan’s current exchange rate policy
b. What does the politician want the exchange rate policy to be in the short run? Why would such a policy have no effect on the exchange rate in the long run?
Chapter 19 Solutions
Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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