Economics

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l*A qtu&..w 3 , Wflo^fl&" Quao-ohav -? CHAPTER l5 International and Balance of Payments lssues in the Macro Economy 451 il

T'$!ffit.8 'L5.8{updatedi Effect of Dollar Appreciation and Depreciation on U.S. Exports and lmports

R * EUftOl$

U.5. exports: Televisions

U.5. imports: European cars

U.S. exports: Televisions

U.5. imports: European cars

DOMESTIC PRICE

51.000

Euro 25,000

s 1 ,000

Euro 25,000

JAN 09: R = 0.76

JAN O8: B = 0.68

JUNE 09: R = 0.71

JAN 09: R = O.76

EFFECT ON EXPORTS IX) AND IMPORTS (M)

4.

5.

If the U.S. economy is operating near ft;Il employ- ment and the exchange rate increases (the dollar appreciates), explain why the Federd Reserve will be l,ess i,ncl;i,ned, to raise interest rates. ln a flexible exchange rate system, explain why a country whose income grows faster than that of its kading parhers can expect its exchange rate to fall, or the value ofits currency to depreciate. Using the simple model of Table 15.12, explain why there is a balance of payments equilibrium

Application Questions In curent business publications or on the Bureau of Economic Analysis international accounts Web page (www.bea. doc. gov/bea./international), fi nd the latest statistics on the balance of pa;rments @oth the current and the financial accounts). How do the balance of payments figures compare with those for 2011 in Thble 15.4? On the Bureau of Economic Analysis international accounts Web page, find statistics on the current direct foreign investment in the United States. What are the categories of this investment, and how have they changed in recent years? Based on the discussion in this chapter, update the controversy over the value of the Chinese yuan in foreign clilTency markets. Is China still using

when export spending equals import spending. What is the more general condition for equilibrium in the balance of payments?

6. In the foreign exchange market, explain which variatrles cause a movement along the demand for dollars curve and which variables cause the curve to shift. Repeat the exercise for the supply ofdollars curve.

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central bank foreign exchange policy to maintain the value of the yuan? What is the current policy of the United States on this issue? What is the current value of the euro relative to the U.S. dollar? What macro policies are the coun- tries in the European Union following regarding their economies, and how do these policies affect the value ofthe euro? Find examples in current news publications similar to those in this chapter of the strategic responses of individual businesses to changes in crrrency exchange rates. Are these flrms adapting to the changing international environment, or are they engaged in political action to try to modify that environment?

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Economics for Managers, Third Edition, by Paul G. Farnham. Published by Prentice Hall. Copyright O 2014 by Pearson Education, lnc