Question

1. A country produces computers. If the pretrade domestic price for computers is $ 900, and the world price for computers is $ 600, will this country export or import computers?

(b) Say the US dollar appreciates against other currencies. What will happen to US exports? To US imports?

(c) Say US interest rates increase over Japanese interest rates. Will the US dollar appreciate or depreciate against the Japanese yen?

(d) Say the US economic growth rate increases over the Canadian economic growth rate. Will the US dollar appreciate or depreciate against the Canadian dollar?

Answer 1

a) As the local price of the good is higher than the world market price, this nation will import from the world market as the producer in the world market are able to provide at a lower price.

b) As the Dollar has appreciated that will decrease the US exports as the US goods are not competitive anymore because importers have to given a larger sum to buy US goods. It will increase the imports as the US consumers will have to pay less in terms of dollar to get other goods.

c) As the US interest rate has increases that will increase the inflow of foreign currency in the US, more supply of the Forex will appreciate the US dollar against the Yen.

d) It will lead to a depreciation of the US dollar as imports in the US will increase and exports will be falling.