Determine the impact of expectation of rise in price in Country NY and falling price in Country L and identify the expectation become self-fulfilling.

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Chapter 9, Problem 19APA

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Determine the impact of expectation of rise in price in Country NY and falling price in Country L and identify the expectation become self-fulfilling.

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As the price level rises, the cost of borrowing money will (remain the same, fall, rise), causing the quantity of output demanded to (remain the same, fall, rise). This phenomenon is known as the (exchange rate, interest rate, wealth) effect. When an economy’s price level rises, ceteris paribus, the domestic price level relative to the price level in other countries will (rise, fall). This means that domestic exports will be relatively (less, more) expensive than before, while foreign imports will be relatively (less, more) expensive than they were previously. The number of domestic products purchased by foreigners (exports) will therefore (remain the same, fall, rise), and the number of foreign products purchased by domestic consumers and firms (imports) will (remain the same, fall, rise). Net exports will therefore(remain the same, fall, rise), causing the quantity of domestic output demanded to(remain the same, fall, rise). This phenomenon is known as the (interest rate, open…

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Using data from The Economist's Big Mac Index for 2019, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $5.74 in the United States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.25 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: Dollar price of a Big Mac in the United KingdomDollar price of a Big Mac in the United Kingdom = = GBP 3.29×$1.25GBP 1.00GBP 3.29×$1.25GBP 1.00 = = $4.11$4.11 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is…