Question

Suppose that the rest of the world goes through an economic recession. Using the foreign exchange...

Suppose that the rest of the world goes through an economic recession. Using the foreign exchange market show what this would do to the exchange rates and net exports from the U.S. perspective

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans. When the other countries are going through recession, there income falls, so, demand for US exports falls. This leads to decrease in net expots component in USA.
Decrease in net exports leads to fall in demand for US dollar. This shifts the demand curve for US exports leftwards from D to D'. This at given supply of US dollar leads to depreciation of US dollar decreasing exchange rate from e to e' and equilibrium quantity of US dollar decreases from L to L'.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Complete the following: Using a supply and demand model in the market for foreign exchange, show...
Complete the following: Using a supply and demand model in the market for foreign exchange, show how each of the following changes will affect the exchange rate (R) in the market for U.S. dollars. a. The United States experiences rapid decrease in productivity b. Return to investments in the United States increase. c. American computers are less popular abroad. d. The stock market in the United States recovers from the Great Recession. e. There is evidence of deflation (decrease in...
Assume interest rates increase in Mistyville but not in Silvania. Using a correctly labeled foreign exchange...
Assume interest rates increase in Mistyville but not in Silvania. Using a correctly labeled foreign exchange graph for Silvania, show and explain the impact of the change in interest rates on each of the following: the supply of Silvania’s dollar. the international value of Silvania’s dollar. Silvania’s net exports.
An open economy interacts with the rest of the world through its involvement in world markets...
An open economy interacts with the rest of the world through its involvement in world markets for goods and services and world financial markets. Although it can often result in an imbalance in these markets, the following identity must remain true:        In other words, if a transaction directly affects the left side of this equation, then it must also affect the right side. The following problem will help you understand why this identity must hold. Suppose you are...
Suppose the foreign government increases its Lump Sum Taxes. Using appropriate diagrams for the foreign exchange...
Suppose the foreign government increases its Lump Sum Taxes. Using appropriate diagrams for the foreign exchange markets of "e" and "x" (1 diagram for each market) explain what happens to the value of the dollar (and why) from this fiscal policy change.
Suppose that US saving drops as the US emerges from a recession and that the US...
Suppose that US saving drops as the US emerges from a recession and that the US is a small, open economy. A. Use the open economy model and a graph to show what this will do to US net exports B. Now suppose that saving worldwide shrinks. Use the model and a graph to show what happens to US net exports.
Suppose the direct foreign exchange rates in U.S. dollars are 1 British pound = $ 1.20...
Suppose the direct foreign exchange rates in U.S. dollars are 1 British pound = $ 1.20 1 Canadian dollar = $ 0.68 Required: a. What are the indirect exchange rates for the British pound and the Canadian dollar? (Round your answers to 4 decimal places.) 1 USD British pounds 1 USD Canadian dollars b. How many pounds must a British company pay to purchase goods costing $10,000 from a U.S. company? (Do not round intermediate calculations.) British pounds c.How many...
Suppose the domestic and foreign interest rates are both initially equal. Now suppose the domestic interest...
Suppose the domestic and foreign interest rates are both initially equal. Now suppose the domestic interest rate rises. Explain what effect this will have on the exchange rate, net exports and consequently on output. Also, explain what must occur for the interest parity condition to be restored.
Question 1 The exchange rate is the: The opportunity cost at which goods are exchanged The...
Question 1 The exchange rate is the: The opportunity cost at which goods are exchanged The volume at which exports flow out of the country. Price of one currency in terms of another. All of the above. Flag this Question Question 2 Which of the following would create a demand for dollars? When foreign countries buy U.S. exports When the U.S. buys imports from other countries. When the U.S. citizens travel abroad. When U.S. imports are greater than exports. Flag...
2. Using a figure describing both the U.S. money market and the foreign exchange market, analyze...
2. Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of an increase in the U.S. money supply on the dollar/euro exchange rate. 3. What are the main factors that determine aggregate money demand? Why does the real money demand curve slope downward? 4. What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.165 per euro,...
Trade barriers Suppose there are only two countries in the world (Home and Rest of the...
Trade barriers Suppose there are only two countries in the world (Home and Rest of the World) which produce and consume wheat. The price of wheat in Rest of the World is equal to 2 and Home is a small country with the following demand and supply functions for wheat: ?h = 50 − 10? ?h = 30 + 10? a. Compute and graph the equilibrium in the absence of trade. What would be the consumer and producer surplus? b....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT