International Economics
16th Edition
ISBN: 9781305887633
Author: Robert Carbaugh
Publisher: Cengage Learning
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Chapter 12, Problem 10SQ
87633-12-10SQ
To determine
Identify the change in demand supply and exchange rate.
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Students have asked these similar questions
An appreciation of the dollar against all currencies in the foreign exchange market would result in all of the following, except:
a) a decrease in the dollar prices paid by U.S. importers.
b) an increase in the cost of vacations in Florida for Japanese tourists.
c) foreign holidays for U.S. residents to be less expensive.
d) an increase in the foreign currency prices paid for U.S. exports.
e) an increase in the demand for U.S. exports.
Who would demand U.S. dollars in the foreign exchange market?
U.S. firms and households wishing to purchase foreign goods and services
Foreigners wishing to purchase U.S goods and services
U.S. households wishing to purchase U.S. goods and services
We noted that in 1900, the fixed exchange rate between the British pound and the U.S. dollar was 1 pound equals $5. What is the exchange rate today? Whose currency has gained the most in purchasing power? What caused this dramatic change in the exchange rate?
Chapter 12 Solutions
International Economics
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- In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…arrow_forwardIf a country with floating exchange rates uses an expansionary monetary policy, the domestic interest rate: A) increases, demand for the domestic currency increases, supply of the domestic currency decreases, and the exchange rate increases. B) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases. C) falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases. D) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous.arrow_forwardWhen you write an exchange rate in terms of how many units of a foreign currency it takes to buy one US dollar, we call that: a)a direct quote b) the real price c) an indirect quote d) a depreciationarrow_forward
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