EBK ECONOMICS FOR TODAY
EBK ECONOMICS FOR TODAY
9th Edition
ISBN: 8220101414250
Author: Tucker
Publisher: Cengage Learning US
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Chapter 28, Problem 15SQ
To determine

The fixed and flexible exchange rate systems in Country U.

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It is often believed that the value of the currency of some countries are too low, which gives the firms in those countries an unfair competitive advantage. Econometric evidence indicates that relative PPP does not hold in the short-run, while it does hold in the long-run. a. What does this imply for countries with a fixed exchange rate that is 'unfairly low'? b. Can a country maintain an 'unfair' competitive advantage in the long-run by somehow manipulating its exchange rate? Explain. c. Assume the UK and the US are the only countries in the world. Explain what will happen in the long run to the pound and the nominal interest rate in the UK as a result of a decrease in the expected inflation rate in the UK..
Suppose 55 percent of Mexico’s trade is with the United States, 20 percent of trade is with Canada, and the remainder of trade is with Brazil. Suppose also that the Mexican peso appreciates 20 percent against the U.S. dollar, depreciates 30 percent against the Canadian dollar, and depreciates 10 percent against the Brazilian real. By how much will Mexico’s trade-weight exchange rate appreciate or depreciate? Show your work.
Travis takes two trips to Ecuador. On his first trip, he finds that one US dollar is worth 25000 Ecuadorian Sucre. On his return trip, he finds that the dollar is now worth 24000 Ecuadorian Sucre. What is a likely result of this change in exchange rates? American exports to Ecuador decrease Ecuadorians will invest less in US American imports from Ecuador will increase American exports to Ecuador increase
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