9) Suppose that Americans decide to increase their saving. a. If the elasticity of US net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on US domestic investment? b. If the elasticity of US exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the US real exchange rate?

9) Suppose that Americans decide to increase their saving. a. If the elasticity of US net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on US domestic investment? b. If the elasticity of US exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the US real exchange rate?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter23: The International Trade And Capital Flows

Section: Chapter Questions

Problem 44P: Imagine that the U.S. economy finds itself in the following situation: a government budget deficit...

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Which of the following does the international investment position consider? The distribution of a nation's assets abroad at the end of the year The total amount of a nation's assets abroad at the end of the year The foreign assets in the nation at the end of the year All of the above 11. A) B) C) D) Answer: 12. If the exchange rate between Euro and US$ is $2.32/€ and the exchange rate between Euro and Swiss Franc is SF2.21/€ then what is the exchange rate between US$ and SF? A) $.626/SF B) $.92/SF C) $1.05/SF D) $1.6/SF Answer:
Q9. Suppose that Malaysians decide to increase their saving. a) If the elasticity of Malaysian net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on Malaysian domestic investment? b) If the elasticity of Malaysian exports with respect the real exchange rate is very low, will this increase in private saving have a large or small effect on the Malaysian real exchange rate?
10) Assume the overall US market price for retail chocolate is $7.00 per pound, and in order to attract "Chocoholic Tourists" from Europe, the Hershey company decides to lower its price to $6.00 per pound. Based on the Purchasing Power Parity theory of exchange rates, what will eventually happen the effective price of chocolate for European buyers, assuming the Euro-USD exchange rate starts at 1€ Per $1.00? Using the chart below, determine the exchange rate at which Hershey's effective chocolate prices will match those of the rest of the chocolate market? # of Lbs Chocolate Exchange Exchange Chocolate 200 Effective budget in Rate Euros Rate budget in Price Euro Euro/$ $/Euro $'s Euros will buy 200.00 € 1.00 1.00 $200 33.33 6.00 € 200.00 € 1.05 0.95 $190 31.75 6.30 € 200.00 € 1.10 0.91 $182 30.30 6.60 € 200.00 € 1.15 0.87 $174 28.99 6.90 € 200.00 € 1.20 0.83 $167 27.78 7.20 € 200.00 € 1.25 0.80 $160 26.67 7.50 € 200.00 € 1.30 0.77 $154 25.64 7.80 € 200.00 € 1.35 0.74 $148 24.69 8.10 €
4 G) Suppose that parliament passes an investment tax credit, which subsidizes domestic investment. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?
D3) . If the actual exchange rate for the euro value of the British pound is less than the exchange rate that would satisfy absolute PPP, which of the currencies is overvalued and which is undervalued? Why?
Purchasing Power Parity (PPP) implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries. In many cases, the PPP is violated. Briefly explain drawing on the assumptions of absolute PPP. You are the trade advisor to a multinational company with an investment of US1,500,000. The following are the rates quoted on the FOREX market. US $ to Euro 1.22/€ US$ to pounds 1.84/£ Euros to pounds 1.54/£ Calculate the cross rate and determine if a profit opportunity exists. What is the value of that profit if you decide to trade with the US$1.5 million?
Suppose that Americans decide to increase their saving. As a result, the real interest rate will and U.S. net capital outflow will If the elasticity of U.S.net capital outflow with respect to the real interest rate is very low, this increase in private saving will have a on U.S. domestic investment. If the elasticity of U.S. exports with respect to the real exchange rate is very high, this increase in private saving will have a U.S. real exchange rate. effect effect on the
Suppose that Americans decide to increase their saving. As a result, the real interest rate will and U.S. net capital outflow will If the elasticity of U.S. net capital outflow with respect to the real interest rate is very low, this increase in private saving will have a on U.S. domestic investment. If the elasticity of U.S. exports with respect to the real exchange rate is very high, this increase in private saving will have a U.S. real exchange rate. effect effect on the
1)Discuss the interrelation between the expected foreign exchange rate and current export and import levels?
D6) Suppose that domestic price level for a basket of goods is given by P = 311 in domestic currency, and the foreign price level for the same basket of goods is given by P* = 5 in foreign currency. What should the exchange rate of domestic currency per foreign currency be according to absolute purchasing power parity? Round to the nearest whole number.
Q: Suppose that the equilibrium exchange rate (Euro/$) is .60 and the The Federal Reserve decides to fix the exchange rate at.40. What will the Federal Reserve have to do in order to maintain this fixed exchange rate? A. The Federal Reserve will need to supply dollars in the foreign exchange market and exchange them for euros to maintain the undervaluation of the currency. B. The Federal Reserve will need to have official reserves of dollars to purchase pesos in the foreign exchange market. C. The Federal Reserve will need to have official reserves of euros to purchase dollars in the foreign exchange market. D. The Federal Reserve will need to supply euros in the foreign exchange market to keep the currency undervalued.
Suppose that the US interest rate is 5.4% per annum and the interest rate in Japan is 2.8% per annum. The value of the US dollar in the spot market is ¥74 what must the forward exchange rate be (yen per US dollar) for There to be no risk less profit? (Enter the numerical value only rounding to one decimal place) The forward rate you calculate above will be different and different from the spot rate explain why it cannot be the same