Macroeconomics
13th Edition
ISBN: 9780134744452
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 9, Problem 19APA
To determine
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…
In the foreign exchange market, the supply curve for the dollar is upward sloping. That is, when the exchange rate (foreign
currency per dollar) increases, the quantity of dollars supplied increases.
Assuming actors have not yet had time to change their expectations about the future exchange rate, when the exchange rate
increases, why is the supply curve of dollars in the foreign exchange market upward sloping?
Foreign goods and services are less expensive to import.
U.S. firms profit more by selling their goods and services domestically rather than selling to foreigners.
The expected profitability of purchasing a dollar today to sell in the future rises.
U.S. goods are less expensive for foreigners to purchase.
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…
Chapter 9 Solutions
Macroeconomics
Ch. 9.1 - Prob. 1RQCh. 9.1 - Prob. 2RQCh. 9.1 - Prob. 3RQCh. 9.1 - Prob. 4RQCh. 9.1 - Prob. 5RQCh. 9.1 - Prob. 6RQCh. 9.1 - Prob. 7RQCh. 9.2 - Prob. 1RQCh. 9.2 - Prob. 2RQCh. 9.2 - Prob. 3RQ
Ch. 9.2 - Prob. 4RQCh. 9.2 - Prob. 5RQCh. 9.2 - Prob. 6RQCh. 9.3 - Prob. 1RQCh. 9.3 - Prob. 2RQCh. 9.3 - Prob. 3RQCh. 9.3 - Prob. 4RQCh. 9.4 - Prob. 1RQCh. 9.4 - Prob. 2RQCh. 9.4 - Prob. 3RQCh. 9 - Prob. 1SPACh. 9 - Prob. 2SPACh. 9 - Prob. 3SPACh. 9 - Prob. 4SPACh. 9 - Prob. 5SPACh. 9 - Prob. 6SPACh. 9 - Prob. 7SPACh. 9 - Prob. 8SPACh. 9 - Prob. 9SPACh. 9 - Prob. 10SPACh. 9 - Prob. 11APACh. 9 - Prob. 12APACh. 9 - Prob. 13APACh. 9 - Prob. 14APACh. 9 - Prob. 15APACh. 9 - Prob. 16APACh. 9 - Prob. 17APACh. 9 - Prob. 18APACh. 9 - Prob. 19APACh. 9 - Prob. 20APACh. 9 - Prob. 21APACh. 9 - Prob. 22APACh. 9 - Prob. 23APACh. 9 - Prob. 24APACh. 9 - Prob. 25APACh. 9 - Prob. 26APACh. 9 - Prob. 27APACh. 9 - Prob. 28APACh. 9 - Prob. 29APA
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- You are given the following information. The current dollar/euro exchange rate is 1.25 dollars per euro. A U.S. basket that costs $100 would cost 64 euro in the euro area. For the next year, the Fed is predicted to keep U.S. inflation at 3% and the ECB is predicted to keep euro area inflation at 1%. The speed of convergence to absolute PPP is 15% per year. e. What is the expected U.S. minus euro area inflation differential for the coming year? f. What is the expected rate of nominal depreciation for the United States (versus the euro)?arrow_forwardIn April 2002, the price of a Big Mac in the UK was £1.99. Using data from The Economist's Big Mac Index for April 2002, the following table shows the local currency price of a Big Mac in several countries and the actual exchange rate. At the time, a Big Mac in the United States would have cost you 2.49 pounds. The actual exchange rate between the pound and the euro was £0.69 per British pound. The euro price of a Big Mac in the United States was, therefore, 2.49 British pounds x £0.69 per British pound = £1.71, which is less than you'd have paid in the UK. For the price you paid for a Big Mac in the UK, you could have purchased a Big Mac in the United States and had some change left over for french fries. Big Mac Index: April 2002 Country Local Price Actual Exchange Rate Argentina 2.49 pesos £0.23 per peso Brazil 3.6 reais £0.29 per real United States 2.49 pounds £0.69 per pound Euro zone 2.67 euros £0.62 per euro Poland 5.9 zloty £0.17 per zloty Switzerland 6.3 francs £0.42 per franc…arrow_forwardThe electricity prices and the natural gas prices have increased drastically, 15 percent and 12 percent respectively. The direct effect of these increases on the inflation rate is 0.6 percent, and the indirect effect is more than 1 percent. Taking into consideration that the producer price index is over 38 percent. Please discuss in detail the effects of these increases on the consumer price index, exchange rate and the current account deficit. What are the policies that should be implemented to counterbalance the effects of these price increases on the economy?arrow_forward
- Assume that in 2010, Country A had an exchange rate of 0.770.77 units of national currency (UNC) per U.S. dollar (USD). By 2015, Country A's budget deficit increased, and Country A decided to issue bonds to finance the deficit. As a result, the exchange rate changed by UNC0.06UNC0.06. Calculate the 2015 exchange rate.arrow_forwardUsing data from The Economist's Big Mac index for 2011, 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 $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: NOTE: here are the options for drop down questions for when u get there The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Brazil (that is, the PPP exchange rate for Big Macs) is __________ ($0.43 per real OR $1.96 per deal OR $2.33 per real OR $2.63 per real). This change would mean that the dollar had ________ (appreciated OR depreciated) against the real.arrow_forwardUsing data from The Economist's Big Mac Index for 2011, 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 $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: S1.63 Dollar price of a Big Mac in the United Kingdom= GBP 2.39 x GBP 1.0 = $3.90 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 french fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Big Mac Index: July 25, 2011 Local…arrow_forward
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