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ECON 103 Lecture Notes - General Agreement On Tariffs And Trade, Fiat Money, United States Dollar

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School
University of Illinois
Department
Economics
Course
ECON 103
Professor
Baer

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Document Summary

With our last example (see econ103l9f12), we saw that the uk initially benefits with the devaluation of the : the uk exports more (uk goods became cheaper) and imports less (us goods became more expensive). However, the uk still imports some goods from the us: either food or goods that are used as inputs in the uk production. If those inputs are more expensive, costs of production (and prices) in the uk increase, that is, inflation happens in the uk. On the other hand, deflation in the us might occur due to lower production costs (since imports of british inputs are cheaper). As a result, inflation in the uk partially counterbalances the advantage that the uk has got with the devaluation of the exchange rate. With inflation in the uk, british goods become more expensive for us consumers, so. On the other hand, us goods are cheaper due to the deflation in us, causing uk imports to increase.

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Related Questions

Let the exchange rate be defined as the number of dollars per British pound. Assume there is a relatively lower rate of inflation in the U.S. relative to that of Britain.

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

(b.) Has the dollar appreciated or depreciated relative to the pound?

(c.) 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 GreatBritain? Illustrate by showing the price of a U.S. cell phone in Britain, before and after the change in the exchange rate.

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

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)

There are probably a thousand macroeconomic indicators, some measure the overall national economy, but some are more limited in scope. The three most often quoted and publicized are the Gross Domestic Production Index (GDP), the Consumer Price Inflation Index (CPI), and the Unemployment Index. Please complete the short answer questions regarding these three indicators:

A. Use the table below:

Table 6-1

 

Value (in billions)

Personal consumption expenditures

$1,000

Gross private domestic investment

$500

Net exports

$300

Imports

$180

Government purchases of goods and services

$280

Transfer Payments

$90

a. What is the value of GDP?

b. In each of the following cases indicate if GDP is affected,+ under what category, and what happens to GDP. Be sure to explain why or why it is not included.

  • You buy a used textbook from one of your classmates.
  • You buy a new umbrella.
  • Ella, a French tourist, has a haircut in a salon in San Francisco.
  • Oklahoma cleans up after a devastating tornado.
  • A pension payment to a retired military person.

B. Why do some people gain and other people lose from inflation and deflation?

C. Define the natural rate of unemployment. Identify three factors that may cause the natural rate to change over time.

D. What is structural unemployment? State the various reasons due to which it can arise in an economy.