Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 30.A, Problem 7PA
To determine
The effect of changing the exchange rate on profit.
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Students have asked these similar questions
Between 1879 and 1914, the world's major nations adhered to the gold standard. Under the gold standard, a country maintained a fixed relationship
between its stock of gold and its money supply. Suppose that Great Britain defined a British pound as 90 grains of gold, and the United States defined
$1 as 150 grains of gold.
Under the gold standard, a British pound would have been worth $0.60
Suppose the fixed exchange rate is $0.60 per pound. Suppose that an economic expansion in the United States leads to an increase in imports from
Great Britain.
On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (cross symbol) to indicate the
imbalance.
1.2
0
Supply for pounds
4
Demand for pounds
12
QUANTITY OF POUNDS (Millions)
U.S. dollars.
16
Demand for pounds
Supply for pounds
+
The Imbalance
(?
Suppose that there are only two countries in the world: Localia (which is us), that uses the
"Localios" (LCL) as its currency, and Nearovia (our trading partner), which uses “Nearos" (NER)
as its currency. For questions 1-3, assume that this exchange rate between the NER and the LCL
is flexible.
Now consider the Supply & Demand market for domestic Localios. Suppose also that the Central
Bank cuts interest rates at home in Localia.
1. What would we expect to happen to the exchange rate for LCL as a result of this rate
cut? Explain using the Supply and Demand Figure for LCL and explain why any
movements of any of the curves occur.
2. Would this create a recessionary gap, inflationary gap, or neither in Localia? Explain
using your AD-AS Figure for Localia.
3. Similarly, what is the effect of the interest rate cut in Localia on the exchange rate for
Nearos and on short-term GDP in Nearovia? Explain using both the Supply and Demands
figure for NER and the AD-AS figure for Nearovia.
If a dollar can buy 98 Japanese yen and a British pound costs $1.50, how many yen would it take to buy £1? If a pound of copper costs £1 in Britain, ¥1,600 per pound in Tokyo, and $1.45 per pound in the United States, where is a pound of copper most expensive and where is it least expensive?
Chapter 30 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 30.A - Prob. 1RQCh. 30.A - Prob. 2RQCh. 30.A - Prob. 3RQCh. 30.A - Prob. 4RQCh. 30.A - Prob. 5RQCh. 30.A - Prob. 6RQCh. 30.A - Prob. 7PACh. 30.A - Prob. 8PACh. 30.A - Prob. 9PACh. 30.A - Prob. 10PA
Ch. 30.A - Prob. 11PACh. 30.A - Prob. 12PACh. 30.A - Prob. 13PACh. 30.A - Prob. 14PACh. 30.A - Prob. 15PACh. 30.A - Prob. 1RDECh. 30 - Prob. 30.1.1RQCh. 30 - Prob. 30.1.2RQCh. 30 - Prob. 30.1.3PACh. 30 - Prob. 30.1.4PACh. 30 - Prob. 30.1.5PACh. 30 - Prob. 30.1.6PACh. 30 - Prob. 30.2.1RQCh. 30 - Prob. 30.2.2RQCh. 30 - Prob. 30.2.3RQCh. 30 - Prob. 30.2.4RQCh. 30 - Prob. 30.2.5PACh. 30 - Prob. 30.2.6PACh. 30 - Prob. 30.2.7PACh. 30 - Prob. 30.2.8PACh. 30 - Prob. 30.2.9PACh. 30 - Prob. 30.2.10PACh. 30 - Prob. 30.2.11PACh. 30 - Prob. 30.2.12PACh. 30 - Prob. 30.2.13PACh. 30 - Prob. 30.2.14PACh. 30 - Prob. 30.2.15PACh. 30 - Prob. 30.2.16PACh. 30 - Prob. 30.2.17PACh. 30 - Prob. 30.2.18PACh. 30 - Prob. 30.2.19PACh. 30 - Prob. 30.2.20PACh. 30 - Prob. 30.3.1RQCh. 30 - Prob. 30.3.2RQCh. 30 - Prob. 30.3.3PACh. 30 - Prob. 30.3.4PACh. 30 - Prob. 30.3.5PACh. 30 - Prob. 30.2RDE
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