ECON 2H03 Lecture 20: Lecture 20

45 views4 pages

whitecrab690

12 Apr 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

The nominal exchange rate is denoted by the leter e. It is the relaive price of domesic currency in terms of foreign currency (yen per dollar, The real exchange rate is denoted by the leter . It is the relaive price of domesic goods in terms of foreign goods (japanese big macs per us big macs) Us big mac, someone from have to pay an amount that. In the real world we can think of as the relaive price of a basket of domesic goods in terms of a basket of foreign goods. In our macro model, there"s just one good, output, so output in terms of the other country"s output is the relaive price of one country"s. If rises: us goods become more expensive relaive to foreign goods, exports fall, imports rise, net exports fall. The net exports funcion refects this inverse relaionship between nx and .

Related Questions

3. How large is the Japanese economy? Japanese GDP in 2010 was 480 trillion yen (US GDP is 14.5 trillion). The exchange rate in 2010 was 87.8 yen per dollar. Contrary to China and India, however, Japan had higher prices than the United States: the price level in Japan (converted to dollars) divided by the price level in the United States was 1.243 in 2010.

a. What is the ratio of Japanese GDP to U.S. GDP if we don't take into account the differences in relative prices and simply use the exchange rate to make the conversion?

b. What is the ratio of GDP in Japan to real GDP in the United States in common prices?

c. Why are the two numbers different?

tealrabbit639

TCOs E and I) Let the exchange rate be defined as the number of dollars per Japanese yen. Assume that there is a relatively lower rate of inflation in the U.S. relative to that of Japan.

(a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the yen? Why?

(b.) (10 points) Has the dollar appreciated or depreciated in value relative to the yen?

(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Japan? Illustrate by showing the price of a U.S. e-reader in Japan, before and after the change in the exchange rate.

(d.) (10 points) If you had a business exporting goods to Japan, and U.S. inflation fell as discussed above in this example, would you plan to expand production or cut back? Why? (Points : 40)

. (TCO E and I) Let the exchange rate be defined as the number of dollars per Japanese yen. Assume that there is a decrease in U.S. interest rates relative to that of Japan.

(a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the yen? Why?

(b.) (10 points) Has the dollar appreciated or depreciated in value relative to the yen?

(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Japan? Illustrate by showing the price of a U.S. e-reader in Japan before and after the change in the exchange rate.

(d.) (10 points) If you had a business exporting goods to Japan, and U.S. interest rates fell as they have in this example, would you plan to expand production or cut back? Why? (Points : 40)

ECON 2H03 Lecture 20: Lecture 20

Document Summary

Get access

Related Documents

ECON 2H03 Lecture Notes - Lecture 7: Canadian Dollar, Relative Price

ECON 2H03 Lecture Notes - Lecture 24: Exchange Rate, Aggregate Demand, Trade Restriction

ECON 2H03 Lecture Notes - Lecture 8: Real Income

Related Questions