Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 21, Problem 11P
To determine
To fill:
The effect on the supply of the dollars, the
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Great Britain and the United States produce cheddar cheese and blue cheese. Current domestic prices per pound for each type of cheese are given in the following table
United States
$35
$50
Cheddar cheese
Blue cheese
Great Britain
£12
€25
Suppose the exchange rate is £1 = 51.
If the price ratios within each country reflect resource use, Great Britain has a comparative advantage in the production of cheddar cheese.
United States has a comparative advantage in the production of blue cheese.
Assume there are no other trading partners and that the only motive for holding foreign currency is to buy foreign goods
Explain whether the current exchange rate will lead to trade flows in both directions between the two countries
the exchange rate?
OA. Only cheddar cheese produced in Great Britain will be traded for blue cheese produced in the United States
B. Cheddar cheese and blue cheese will be purchased in Great Britain and sold in the United States
OC. Cheddar cheese and blue cheese will be…
If the exchange rate between the United States dollar and the Indian rupee changes from $1=60 rupees to $1=10 rupees, ceteris paribus, one would anticipate that ___________.
Group of answer choices
A) India’s exports to the United States increase
B) the current account in the United States’ balance of payments stays the same
C)the trade deficit in the United States increases
D)the United States’ imports from India increase
E)the United States’ exports to India increase
Draw a demand for dollars curve. Label it D.
Draw a supply of dollars curve. Label it S.
Draw a point at the equilibrium quantity and equilibrium exchange rate.
Exchange rate (U.S. cents per Canadian dollar)
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Draw an arrow between the D and S curves that indicates a price at which there is
a surplus of dollars. Label it.
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Quantity (billions of Canadian dollars per day)
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