Question

Suppose that in the United States last season’s hot holiday gift was the iPad (which is made primarily in China) while this season’s big gift is media content for the iPad (which is made in the U.S.). Determine whether there will be an increase, decrease, or no change for each of the following variables compared to last year.

     a. The supply of dollars would   (Click to select)   decrease   increase   not change  and the demand for dollars would   (Click to select)   increase   decrease   not change  .

     b. The exchange rate between the U.S. dollar and the Chinese yuan would   (Click to select)   fall   rise   not change  , causing the dollar to   (Click to select)   depreciate   appreciate   not change  .

     c. Net exports for the U.S. would   (Click to select)   not change   increase   decrease   increase or decrease  .

     d. Net capital outflows for the U.S. would   (Click to select)   rise   fall   either rise or fall  .

Answer 1

Solution:

Solution:

A] The supply of dollars would decrease (due to less exports from China and hence less dollars available for china) and the demand for dollars would not change (No variable is related with it here).

B] The exchange rate between the U.S. dollar and the Chinese yuan would fall causing the dollar depreciate.

C] Net exports for the U.S. would increase due to less imports of I pads

D] Net capital outflows for the U.S. would fall as China is less attractive