Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 26, Problem 4SPA
(a)
To determine
Identify the event that causes a change in the value of the U.S. dollar.
(b)
To determine
Identify the determined event that will impact on change in
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The U.S. dollar exchange rate increased from $0.96 Canadian in June 2011 to $1.03 Canadian in June 2012, and it decreased from 81 Japanese yen in June 2011 to 78 yen in June 2012.
1. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the yen?
2. What was the value of the Canadian dollar in terms of U.S. dollars in June 2011 and June 2012? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?
3. What was the value of 100 yen in terms of U.S. dollars in June 2011 and June 2012? Did the yen appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?
The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchange rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar.
a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative USdollar? Explain your answer and show the calculation.
b. Do you think the price of a representativeness car, Mercedes Benz in different countriesprovides a valid test of purchasing power parity?
Can you show me a Supply and Demand graph that shows how each of these events would either lead to a shift in supply of, or demand for, the foreign currency, ultimately leading to an appreciation of the US $: A decrease in Americans' preference for foreign goods A decrease in U.S. real GDP and real income A decrease in the real interest rate on foreign bonds A decrease in confidence in foreign economies Increase in demand for U.S. exports Increase in visitors to the U.S. w/ explanations
Chapter 26 Solutions
Macroeconomics
Ch. 26.1 - Prob. 1RQCh. 26.1 - Prob. 2RQCh. 26.1 - Prob. 3RQCh. 26.1 - Prob. 4RQCh. 26.1 - Prob. 5RQCh. 26.1 - Prob. 6RQCh. 26.1 - Prob. 7RQCh. 26.2 - Prob. 1RQCh. 26.2 - Prob. 2RQCh. 26.2 - Prob. 3RQ
Ch. 26.2 - Prob. 4RQCh. 26.2 - Prob. 5RQCh. 26.2 - Prob. 6RQCh. 26.3 - Prob. 1RQCh. 26.3 - Prob. 2RQCh. 26.3 - Prob. 3RQCh. 26.3 - Prob. 4RQCh. 26.4 - Prob. 1RQCh. 26.4 - Prob. 2RQCh. 26.4 - Prob. 3RQCh. 26 - Prob. 1SPACh. 26 - Prob. 2SPACh. 26 - Prob. 3SPACh. 26 - Prob. 4SPACh. 26 - Prob. 5SPACh. 26 - Prob. 6SPACh. 26 - Prob. 7SPACh. 26 - Prob. 8SPACh. 26 - Prob. 9SPACh. 26 - Prob. 10SPACh. 26 - Prob. 11APACh. 26 - Prob. 12APACh. 26 - Prob. 13APACh. 26 - Prob. 14APACh. 26 - Prob. 15APACh. 26 - Prob. 16APACh. 26 - Prob. 17APACh. 26 - Prob. 18APACh. 26 - Prob. 19APACh. 26 - Prob. 20APACh. 26 - Prob. 21APACh. 26 - Prob. 22APACh. 26 - Prob. 23APACh. 26 - Prob. 24APACh. 26 - Prob. 25APACh. 26 - Prob. 26APACh. 26 - Prob. 27APACh. 26 - Prob. 28APACh. 26 - Prob. 29APA
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Similar questions
- 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.arrow_forwardWhat happens to the exchange rate of a country’s currency when that country experiences high levels of inflation for an extended period of time? How will it affect the flow of that country’s currency in and out of the country? Explain your answers.arrow_forwardIn mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros (the monetary unit in the European Union). If a U.S. dollar bought 0.55 pound sterling in 2006, what was the exchange rate between the U.S. dollar and the euro?arrow_forward
- The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchangesrates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative USdollar? Explain your answer and show the calculation.b. Do you think the price of a representativeness car, Mercedes Benz in different countriesprovides a valid test of purchasing power parity?arrow_forwardIn April 2002, the price of a Big Mac in the UK was £1.99. Using data from The Economist's Big Mac Index for April 2002, the following table shows the local currency price of a Big Mac in several countries and the actual exchange rate. At the time, a Big Mac in the United States would have cost you 2.49 pounds. The actual exchange rate between the pound and the euro was £0.69 per British pound. The euro price of a Big Mac in the United States was, therefore, 2.49 British pounds x £0.69 per British pound = £1.71, which is less than you'd have paid in the UK. For the price you paid for a Big Mac in the UK, you could have purchased a Big Mac in the United States and had some change left over for french fries. Big Mac Index: April 2002 Country Local Price Actual Exchange Rate Argentina 2.49 pesos £0.23 per peso Brazil 3.6 reais £0.29 per real United States 2.49 pounds £0.69 per pound Euro zone 2.67 euros £0.62 per euro Poland 5.9 zloty £0.17 per zloty Switzerland 6.3 francs £0.42 per franc…arrow_forwardIn 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.arrow_forward
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