Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 34, Problem 1IAPA
To determine
To explain:
The prediction that can be made for change in the dollar-euro exchange rate with the help of a graph.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
What is the current (within the last 48 hours) exchange rate between the U.S. dollar and the Chinese Yuan?
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.
Consider the exchange rate between the Moroccan dirham and the euro. Suppose the Moroccan government and the Eurozone governments agree to
fix the exchange rate (ER) at 2.5 dirham per euro, as shown by the grey line on the following graph.
Refer to the following graph when answering the questions that follow.
EXCHANGE RATE (Dirham per euro)
4.0
3.5
1.0
0.5
0
0
2
4
12
QUANTITY OF EUROS (Billions)
6
8
10
Supply of Euros
ER
"Demand for Euros
At the official dirham price of euros, there is a
14
At the official exchange rate of 2.5 dirham per euro, the euro is
that Moroccans pay
16
?
and the Moroccan dirham is
for European exports than they would with a free-floating exchange rate.
of euros in the foreign exchange market.
, which means
Suppose the governments of the Eurozone and Morocco reevaluate their currencies so that their official exchange rate is now 1 dirham per 1 euro.
This action results in
of the euro.
Chapter 34 Solutions
Foundations of Economics (8th Edition)
Ch. 34 - Prob. 1SPPACh. 34 - Prob. 2SPPACh. 34 - Prob. 3SPPACh. 34 - Prob. 4SPPACh. 34 - Prob. 5SPPACh. 34 - Prob. 6SPPACh. 34 - Prob. 7SPPACh. 34 - Prob. 8SPPACh. 34 - Prob. 9SPPACh. 34 - Prob. 10SPPA
Ch. 34 - Prob. 1IAPACh. 34 - Prob. 2IAPACh. 34 - Prob. 3IAPACh. 34 - Prob. 4IAPACh. 34 - Prob. 5IAPACh. 34 - Prob. 6IAPACh. 34 - Prob. 7IAPACh. 34 - Prob. 8IAPACh. 34 - Prob. 1MCQCh. 34 - Prob. 2MCQCh. 34 - Prob. 3MCQCh. 34 - Prob. 4MCQCh. 34 - Prob. 5MCQCh. 34 - Prob. 6MCQCh. 34 - Prob. 7MCQCh. 34 - Prob. 8MCQ
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- View the data below for the exchange rate between the US dollar and the Japanese yen. How many yen could you get per dollar at the earliest date shown on the chart? Explain. How many yen could you get per dollar at the most recent date shown on the chart? Explain. Has the dollar appreciated or depreciated in value over time? Explain.arrow_forwardUsing words and a graph, explain how the equilibrium in the foreign exchange market takes place. Make sure that, as part of your answer, you refer to the related equation.arrow_forwardYou observe the following exchange rates: 1 USD = 1.42 Euro 1 USD = 169.97 Yen 1 Euro = 112.69 Yen You start with 100 USD and you can make 3 exchanges. What is the maximum amount of USD you can end up with? Do not round until your final answer, at which point you can round to two decimal places.arrow_forward
- What is an exchange rate? Why would a government want to maintain a fixed exchange rate? If the U.S. wanted to maintain a fixed exchange rate between the Euro and the Dollar, how would it do so?arrow_forwardWhen you write an exchange rate in terms of how many units of a foreign currency it takes to buy one US dollar, we call that: a)a direct quote b) the real price c) an indirect quote d) a depreciationarrow_forwardConsider the exchange rate between the Saudi riyal and the euro. Suppose the Saudi government and the Eurozone governments agree to fix the exchange rate at 1 riyal per euro, as shown by the grey line on the following graph. Refer to the following graph when answering the questions that follow. EXCHANGE RATE (Riyal per euro) 4.0 3.5 3.0 1.5 1.0 0.5 0 0 4 Supply of Euros Demand for Euros 8 12 16 20 QUANTITY OF EUROS (Billions) 24 28 32 At the official riyal price of euros, there is a At the official exchange rate of 1 riyal per euro, the euro is pay and the Saudi riyal is ▼ for European exports than they would with a free-floating exchange rate. of euros in the foreign exchange market. , which means that Saudis Suppose the governments in the Eurozone and Saudi Arabia agree to change the official exchange rate from 1 riyal per euro to 2 riyal per euro. The action represents a of the euro and a of the riyal.arrow_forward
- The following graph depicts the foreign exchange market for euros. The blue line represents the demand schedule for euros, while the orange line represents the euro supply schedule. Suppose that real interest rates in France suddenly increase, while real interest rates in the United States remain stable. Use the graph to shift either the supply schedule, the demand schedule, or both, to depict the impact on the value of the euro. Then answer the question that follows. D QUANTITY OF EUROS As a result of this, the value of the euro is expected top VALUE OF EURO (U.S. dollars per euro)arrow_forwardIf the European Central Bank starts to raise its policy interest rate before the Fed starts to raise the federal funds rate target, what do you predict will happen to the dollar/euro exchange rate? Illustrate your answer with an appropriate example.arrow_forwardThe autonomous region of Catalonia has recently declared independence from Spain, and is looking for an exchange rate policy that would best fit their needs. The Catalans’ main goal is to stabilise the price level in the long-run, but constantly experience fluctuations in the price of foreign goods imported from Spain and other European countries. Would it be better for the Catalans to fix the exchange rate against the Euro, or to adopt a floating exchange rate? Justify your answer briefly.arrow_forward
- Suppose we discover that the Canadian dollar suddenly depreciates against the Euro. What could be responsible for this: Prices of goods and services in Europe rise more than prices in Canada OR Canadian tourist destinations become more attractive than those in Europe OR Interest rates in Europe rise more than interest rates in Canada? Choose one and explain.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_forwardExplain how exchange rates can affect a firm’s global sales.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning