Question

1. There has been much discussion/debate regarding the impact of President Trump’s trade policies. Suppose that, in response to President Trump’s protectionist trade proposals, US investors wish to increase their investments in Europe as they see their economies as doing better in this kind of protectionist trade environment. Use supply and demand analysis to determine the impact on a) the Dollar/Euro exchange rate. We expect that the dollar ____ (depreciates or appreciates) relative to the Euro.

2. Why did the dollar depreciate/appreciate?

	A.	There is an increase in the demand for Euros.
	B.	There is an increase in the Supply of Euros.
	C.	There is an increase in the demand for Dollars.
	D.	There is an increase in the Supply of Dollars.

3. The tables below illustrate production possibilities for Japan and the US in the production of electronic equipment EE) and autos (AU). The following questions are based on these tables and pertain to Absolute and Comparative Advantage. Assume each country has the same amount of inputs and allocated 50% of its inputs to electronic equipment and 50% to autos. US is producing at “C” (48, 18) and Japan at “T” (66, 38) [middle columns]. Answer the following questions regarding Absolute and Comparative Advantage in the production of electronic equipment (EE) or autos (AU).  
US Production Possibilities Table

	Production Possibilities
Product	B	C	D
Electronic Equipment (EE)	40	48	80
Automobiles (AU)	20	18	10

  
Japan Production Possibilities Table

	Production Possibilities
Product	S	T	U
Electronic Equipment (EE)	60	66	120
Automobiles (AU)	40	38	20

Which of the following is correct? Japan has an absolute advantage in the production of ___.

	A.	only EE.
	B.	only AU.
	C.	both EE and AU.
	D.	Neither EE nor AU.

Answer 1

Question-1There has been much discussion/debate regarding the impact of President Trump’s trade policies. Suppose that, in response to President Trump’s protectionist trade proposals, US investors wish to increase their investments in Europe as they see their economies as doing better in this kind of protectionist trade environment. Use supply and demand analysis to determine the impact on a) the Dollar/Euro exchange rate. We expect that the dollar ____ (depreciates or appreciates) relative to the Euro.

Answer- The correct answer is "Depreciates" as more of euros will be Demanded by US to invest and more investment will be done in Europe so Euro will appreciate and dollar will Depreciate.

Question-

2. Why did the dollar depreciate/appreciate?

Answer-The dollar depreciates because-

Option A, that is there is an increase in the demand for Euros.