Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 36, Problem 7DQ
To determine
The decline of international value of dollar and the development alarmed in Japan.
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The U.S. economy is growing faster than that of Japan. The faster growth rate in the U.S. should cause the value of the dollar to depreciate against the yen, everything else being equal. Explain.
Would each of the following groups be happy or unhappy if the U.S. dollar appreciated?
Australian tourists planning a trip to the U.S.
An American firm trying to purchase property overseas.
You are an IMF official going to a country whose export earnings are not able to pay for imports. The government has requested a loan from the IMF. Which areas would you recommend the government to cut: (1) education, (2) salaries for officials, (3) food subsidies, and/or (4) tax rebates for exporters
Chapter 36 Solutions
Economics: Principles & Policy
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- If a strike takes place in France, making it harder to buyFrench goods, what will happen to the value of the U.S.dollar?arrow_forwardWhy does the decline in value of a certain currency cause imports to be expensive and exports cheaper, resulting in cost-push and demand-pull inflation?arrow_forwardIn 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…arrow_forward
- Use the excel file above to answer the following question. Which countries have a premium value of the dollar?arrow_forwardIf income is rising faster in Japan than in the United States, there will be an increase in the demand for the yen and a decrease in the demand for the dollar. True Falsearrow_forwardWhich of the following news headlines is most likely to strengthen a country's currency in the short-term? "Political Instability Mounts with Protests and Demonstrations" "Trade Surplus Reaches Record High, Exceeding Expectations" "Fitch Upgrades Country's Credit Rating to AAA"arrow_forward
- Which best explains why U.S. businesses want the U.S. dollar to decrease in value against the Chinese renminbi? They want to be able to buy more raw materials from China. They want to sell more products to Chinese consumers. They want to buy more goods from Chinese businesses for resale. They want to be able to move their factories to China.arrow_forwardIf the U.S. dollar appreciates 30 percent, a U.S. manufacturer experiences decrease/ increase in exports and increase/decrease in domestic sales.arrow_forwardWhether or not one likes a strong U.S. dollar depends on their perspective. For those who are looking to travel abroad, a strong dollar means they can get more for their money. On the other hand, for those who are looking to export goods, a strong dollar can make their products more expensive for foreign buyers. A strong dollar can have a significant impact on U.S. firms. It can make their products more expensive for foreign buyers, which can lead to a decrease in demand and a decrease in profits. Additionally, a strong dollar can make it more difficult for U.S. firms to compete with foreign firms, as their products may be more expensive. Finally, a strong dollar can also make it more difficult for U.S. firms to borrow money from foreign lenders, as the cost of borrowing may be higher. reply to discussionarrow_forward
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