Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 6, Problem 6E
To determine
The consequences that would be faced by a free floating Y and A dollar following a ten year period of domestic price increases of 40% and 25% respectively.
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If the domestic prices for traded goods rose 50 percent over 10 years in Japan and 100 percent over those same 10 years in United States, what would happen to the yen/dollar exchange rate? Why?
In 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…
If the domestic prices for traded goods rose 40 percent over 10 years in China and 25 percent over those same 10 years in the United States, what would happen to a freely floating Chinese yuan/U.S. dollar exchange rate? Why?
Chapter 6 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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Similar questions
- Suppose that yesterday, the U.S. dollar-Japanese yen exchange rate was $1=¥0.553546. The price of one Japanese yen in terms of a U.S. dollar was ___ . Suppose that today the U.S. dollar-Japanese yen exchange rate falls to $1=¥0.533585 for one dollar. This means that between yesterday and today, the U.S. dollar has ___ against the Japanese yen. The price of a Mexican peso in terms of the U.S. dollar is now ___ .arrow_forwardWho would demand U.S. dollars in the foreign exchange market? U.S. firms and households wishing to purchase foreign goods and services Foreigners wishing to purchase U.S goods and services U.S. households wishing to purchase U.S. goods and servicesarrow_forwardWe noted that in 1900, the fixed exchange rate between the British pound and the U.S. dollar was 1 pound equals $5. What is the exchange rate today? Whose currency has gained the most in purchasing power? What caused this dramatic change in the exchange rate?arrow_forward
- Discuss three factors that would impact the values of the major currencies in foreign exchangearrow_forwardWhat is the current (within the last 48 hours) exchange rate between the U.S. dollar and the Chinese Yuan?arrow_forwardExplain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.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_forwardAn appreciation of the dollar against all currencies in the foreign exchange market would result in all of the following, except: a) a decrease in the dollar prices paid by U.S. importers. b) an increase in the cost of vacations in Florida for Japanese tourists. c) foreign holidays for U.S. residents to be less expensive. d) an increase in the foreign currency prices paid for U.S. exports. e) an increase in the demand for U.S. exports.arrow_forwardDescribe how a change in exchange rate will affect a firm. Explain what happened to price and quantity. How can a firm profit from future shifts in the exchange rate? How do you predict future changes in the exchange rate?arrow_forward
- how do companies protect themselves from foreign exchange fluctuationsarrow_forwardView 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_forward
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