Chapter 18: Q. 3 (page 495)
When the U.S. dollar depreciates, what happens to exports and imports in the United States?
Short Answer
When the U. S dollar depreciates the exports will increase and imports will fall.
Chapter 18: Q. 3 (page 495)
When the U.S. dollar depreciates, what happens to exports and imports in the United States?
When the U. S dollar depreciates the exports will increase and imports will fall.
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Get started for freeGo to the St. Louis Federal Reserve FRED database, and find data on the daily dollar exchange rates for the euro (DEXUSEU), British pound (DEXUSUK), and Japanese yen (DEXJPUS). Also find data on the daily three-month London Interbank Offer Rate, or LIBOR, for the United States dollar (USD3MTD156N), euro (EUR3MTD156N), British pound (GBP3MTD156N), and Japanese yen (JPY3MTD156N). LIBOR is a measure of interest rates denominated in each country’s respective currency.
a. Calculate the difference between the LIBOR rate in the United States and the LIBOR rates in the three other countries using the data from one year ago and the most recent data available.
b. Based on the changes in interest rate differentials, do you expect the dollar to depreciate or appreciate against the other currencies?
c. Report the percentage change in the exchange rates over the past year. Are the results you predicted in part (b) consistent with the actual exchange rate behavior?
If nominal interest rates in America rise but real interest rates fall, predict what will happen to the U.S. dollar exchange rate.
A German sports car is selling for €65,000. What is the dollar price in the United States for the German car if the exchange rate is 0.80 euro per dollar?
If the Japanese price level rises by 5% relative to the price level in the United States, what does the theory of purchasing power parity predict will happen to the value of the Japanese yen in terms of dollars?
In September 2012, the Federal Reserve announced a large-scale asset-purchase program (known as QE3) designed to lower intermediate and longer-term interest rates. What effect should this have had on the dollar/euro exchange rate?
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