please help me with question 4 4) Use the money market and FX diagrams to answer the following questions. This questionconsiders the relationship between the euro (€) and the U.S. dollar ($). The exchange rate is inU.S. dollars per euro, Es/e. Suppose that with financial innovation in the United States, realmoney demand in the United States decreases. On all graphs, label the initial equilibrium pointA.a. Assume this change in U.S. real money demand is temporary. Using the FX/moneymarket diagrams, illustrate how this change affects the money and FX markets. Labelyour short-run equilibrium point B and your long-run equilibrium point C.b. Assume this change in U.S. real money demand is permanent. Using a new diagram,illustrate how this change affects the money and FX markets. Label your short-runequilibrium point B and your long-run equilibrium point C.c. Illustrate how each of the following variables changes over time in response to apermanent reduction in real money demand: nominal money supply Mus, price levelPus, real money supply M US/PUS, U.S. interest rate is, and the exchange rate Es/e

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Answered: 4) Use the money market and FX diagrams…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 6PA

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Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the Egyptian pound. How will that affect the demand for pounds. supply of pounds, and exchange rate for pounds compared to, say, U.S. dollars?
Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?
What does it mean to say that a currency appreciates? Depreciates? Becomes stronger? Becomes weaker?
change rate $1.75 1.50 1.25 1.00 200 500 S d 700 900 950 1,000 S D₂ Quantity of euros traded (millions per day) 17) Refer to Figure 30-8. The equilibrium exchange rate is at A $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate A) there is a shortage of euros equal to 200 million. B) there is a surplus of euros equal to 700 million. Othere is a shortage of euros equal to 500 million. D) there is a surplus of euros equal to 300 million.
You observe the following exchange rates Spot GBP/EUR exchange rate 1.120 € per £ 3 month GBP/EUR forward rate 1.115 Which of the following statements is likely to be true? Select one: O a. Neither of the other options O b. UK interest rates are lower than Eurozone interest rates O c. Speculators are expecting GBP to depreciate against EUR for the next year. d. UK interest rates arhigher than Eurozone interest rates. O e. Speculators are expecting GBP to appreciate against EUR for the next year.
Question 10 a b and c Assume that there is a free-floating exchange rate. Will the following cause sterling toappreciate or depreciate relative to other currencies? In each case, you should considerwhether there is a shift in the demand or supply curves of sterling (or both) and whichway the curve(s) shift(s). You may assume that the impacts are ceteris paribus, that is,everything else remains the same. Illustrate your answers and give a short explanation interms of currency supply and demand. (a) UK imports increase. (b) UK interest rates rise relative to those abroad.(c) The UK experiences lower inflation than other countries, but with no change in interestrates.
Question 10 d Anwser only question d please thank you Assume that there is a free-floating exchange rate. Will the following cause sterling toappreciate or depreciate relative to other currencies? In each case, you should considerwhether there is a shift in the demand or supply curves of sterling (or both) and whichway the curve(s) shift(s). You may assume that the impacts are ceteris paribus, that is,everything else remains the same. Illustrate your answers and give a short explanation interms of currency supply and demand.(a) UK imports increase. (b) UK interest rates rise relative to those abroad. (c) The UK experiences lower inflation than other countries, but with no change in interestrates. (d) Forex speculators believe that the Pound sterling will depreciate.
Figure: Foreign Exchange Markets Spom 区区 Dwon D, Q Reference: Ref 12-3 (Figure: Foreign Exchange Markets) Look at the figures in the Foreign Exchange Markets graphs. Suppose there was an increase in the domestic level of Government spending. The resulting changes would be: an increase in the demand for dollars and and a fall in the supply of foreign currency. a decrease in the supply of dollars and a rise in the supply of foreign currency. O an increase in the of supply of dollars and an increase in the demand for foreign currency. a decrease in the demand for dollars and decrease in the demand for foreign currency.
1. Using the following data, answer the questions: USA Мexico 7% Annual Inflation 4% Interest Rate 7% 12% Spot Exchange Rate Sept. 1 of Year 1 Market Exchange Rate for December 31 of Year 1 $19.99 MXP/USD $20.40 MXP/USD According to PPP Theory, calculate the Theoretical Exchange Rate for December of a) Year 1 and determine if the USD is undervalued or overvalued with respect to the market and by how much. According to IFE Theory, calculate the Theoretical Exchange Rate for December of b) Year 1 and determine if the MXP is undervalued or overvalued with respect to the market and by how much.
Question 4Use the money market and FX diagrams to answer the following questions about the relationshipbetween the British pound and the U.S. dollar. The exchange rate is in U.S. dollars per Britishpound, E$/pound. We want to consider how a change in the U.S. money supply affects interestrates and exchange rates. On all graphs, label the initial equilibrium point A.(a) Illustrate how a temporary increase in the U.S. money supply affects the money and FXmarkets. Label your short-run equilibrium point B and your long-run equilibrium point C.(b) Using your diagram from (a), state how each of the following variables changes in theshort run (increase/decrease/no change): U.S. interest rate, British interest rate, E$/pound,Ee$/pound, and the U.S. price level P.(c) Using your diagram from (a), state how each of the following variables changes in thelong run (increase/decrease/no change relative to their initial values at point A): U.S. interestrate, British interest rate, E$/pound, Ee$/pound,…
. If a US resident spends $1,000 to buy €880 worth of French burgundy wine, the US balance of payments shows… a) current acct imports of -$1,000 and capital acct exports of +€880 b) current acct imports of -€880 and capital acct exports of -$1,000 c) current acct imports of -$1,000 and capital acct exports of +$1,000 d) capital acct exports of +$1,000 and capital acct imports of -$1,000.
3. Toyota manufactures most of the vehicles it sells in the United Kingdom in Japan. The baseplatform for the Toyota Tundra truck line is X1,650,000. The spot rate of the Japanese yen againstthe British pound has recently moved from X197/E to X190/E. How does this change the price of theTundra to Toyota's British subsidiary in British pounds?

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