Suppose that εD = 0.70 and ε_D^F = 0.50 for a given country: Suppose that the foreign currency price of this country’s exports falls by 18% following a devaluation. What will happen to the quantity of exports?
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Suppose that εD = 0.70 and ε_D^F = 0.50 for a given country: Suppose that the foreign currency price of this country’s exports falls by 18% following a devaluation. What will happen to the quantity of exports?
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- Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the economy of this country in billions of dollars, where C is consumption, DI is disposable income, I is investment, and G is government purchases: C� = = 30+0.8×DI30+0.8×DI G� = = 5050 I� = = 6060 Initially, this economy had a lump sum tax. Suppose net taxes were $50 billion, so that disposable income was equal to Y – 50, where Y is real GDP. In this case, this economy's aggregate output demanded was ___________ . Suppose the government decides to increase spending by $10 billion without raising taxes. Because the spending multiplier is ____________ , this will increase the economy's aggregate output demanded by ____________ . Now suppose that the government switches to a proportional tax on income of 10%. Because consumers retain the remaining 90% of their income, disposable income is now equal to 0.90Y. In this case, the economy's aggregate output…Jamaica's current account averaged US$-65.94M from 1987 until 2020, reaching an all-time high of US$153.47M in the first quarter of 2016 and a record low of US$-536.06M in the third quarter of 2012. The country recorded a current account surplus of US$53.64M in the fourth quarter of 2020. At present, Jamaica ranks 83rd out of a group of 172 countries being tracked by the World Bank in terms of current account balance. This is 27 places above the position seen 10 years ago. The current account is one of two primary components of the balance of payments. As a per cent of GDP, it provides an indication of the level of international competitiveness of a country. Usually, countries recording a strong current account surplus have economies which are heavily dependent upon exports revenues and have high savings ratings but weak domestic demand. On the other hand, countries recording a current account deficit have strong imports, low saving rates and high personal consumption rates as a…Let elasticity of demand for exports for a certain country be ex and elasticity of demand for imports is em. Assume that the country devalues its currency. Its balance of payment will almost certainly show an improvement if: a) ex = e, >1 b) ex = e = 1 : c) ex = em <1 d) e₂ + m = 1
- Assume that you are studying exchange rates between India and the US. Assume that the equilibrium exchange rate in India is 76 Indian rupees per US dollar. Now suppose that the inflation rate falls in India. Which of the following choices shows a change we would expect to see in the Indian forex market? The demand for the US dollar would rise, leading to a depreciation of the Indian rupee. The demand for the Indian rupee would increase leading to an appreciation of the US dollar. The supply of the Indian rupee would rise leading to an appreciation of the Indian rupee. The supply of the US dollar would rise leading to an appreciation of the Indian rupeeAccording to the economic theory, growth in a country's exports results in appreciation of the country's currency. Explain under which conditions this will not be true. Illustrate your answer with an example.If the U.S. Dollar appreciates, foreigners will find American goods more expensive because they have to spend less for those goods in USD, meaning with higher prices, the number of U.S. goods being exported will likely drop and leads to a reduction in the Gross Domestic Product (GDP). True or False
- View 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.You work for a Nova Scotia Company trying to successfully enter the cranberry market in Australia. Analyze the entry country (Australia) based on the following; What are the major exports, dollar value, and trends? What are the major imports, dollar value, and trends? Does the entry country have a surplus or deficit for trade? What are the exchange rates? Are there any restrictions on currency trade? You should also consider sweat shops, skilled labor, employee unrest, political and social activists and labor unions in your analysis.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…
- 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 exportersIf you observed a country with a rapidly growing trade surplus over a period of a year or so,would you be more likely to believe that the country's economy was in a period of recession or of rapid growth? Explain.The Big Mac index was introduced by The Economist magazine in 1986, as a playful example to introduce the concept of purchase power parity (PPP) and under/overvaluation of currencies. The PPP rates are usually compiled based on consumer baskets of comparable quality. The problem is that goods in different economies are hardly comparable. The customer basket contains only one good which is made everywhere in exactly the same way – McDonald’s Big Mac. You might think that is an oversimplification, but in fact the Big Mac Index has been widely used for comparing currencies ever since it was first published. Explore the concept behind the Big Mac index and critically assess the importance of comparability of goods in various economies.
