Assume that initially nominal exchange rate is E1=5 ($1 = t5) and domestic (Turkey) inflation rate is nTR=10% percent while the US inflation rate is nUS*=0%. If export value of Turkey equals t 200 billion and it's import is $100 billion. Initially Turkey NX (net export) would display t 300 billion deficit. If the nominal exchange rate increases suddenly from E1=5 to E2=6,6 while the price levels are still fixed (at the first step of J Curve) NX would be t 460 billion deficit in short run. If the real exchange rate elasticity of export is 1 and real exchange rate elasticity of import is -0,8. NX would converge to t billion deficit in long run.
Assume that initially nominal exchange rate is E1=5 ($1 = t5) and domestic (Turkey) inflation rate is nTR=10% percent while the US inflation rate is nUS*=0%. If export value of Turkey equals t 200 billion and it's import is $100 billion. Initially Turkey NX (net export) would display t 300 billion deficit. If the nominal exchange rate increases suddenly from E1=5 to E2=6,6 while the price levels are still fixed (at the first step of J Curve) NX would be t 460 billion deficit in short run. If the real exchange rate elasticity of export is 1 and real exchange rate elasticity of import is -0,8. NX would converge to t billion deficit in long run.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter11: Foreign Exchange, Trade, And Bubbles
Section: Chapter Questions
Problem 8MC
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Transcribed Image Text:Assume that initially nominal exchange rate is E1=5 ($1 = t5) and domestic (Turkey) inflation rate is nTR=10% percent while the US inflation rate is nUS*=0%. If
export value of Turkey equals t 200 billion and it's import is $100 billion. Initially Turkey NX (net export) would display t 300
billion deficit.
If the nominal exchange rate increases suddenly from E1=5 to E2=6,6 while the price levels are still fixed (at the first step of J Curve) NX would be t
460
billion deficit in short run. If the real exchange rate elasticity of export is 1 and real exchange rate elasticity of import is -0,8. NX would
converge to t
billion deficit in long run.
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