Exam 13: Mechanisms of International Adjustment

The shift in focus toward imperfectly competitive markets in domestic and international trade questions the concept of

Which approach predicts that if an economy operates at full employment and faces a trade deficit, currency devaluation (depreciation) will improve the trade balance only if domestic spending is cut, thus freeing resources to produce exports?

Figure 13.2. The U.S. Market for Imported Toyotas ​ -In Figure 13.2, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the U.S.market.A shift in the marginal cost curve from MC₀ to MC₂ leads to

Suppose the U.S.price elasticity of demand for imports equals 0.4 and the foreign demand elasticity for the U.S.exports equals 0.2.According to the Marshall-Lerner condition, a depreciation of the dollar's exchange value will improve the U.S.balance of trade.

An appreciation of the U.S.dollar tends to

How do demand elasticities influence a country's trade position when exchange rates change?

The extent to which changing currency values result in changing relative prices of imports and exports is known as the J-curve effect.

When manufacturing automobiles, suppose that General Motors uses labor and materials whose costs are denominated in dollars and pounds respectively.If the dollar's exchange value appreciates by 15 percent against the pound, the pound-denominated cost of a GM vehicle rises by 15 percent.

Partial currency pass-through implies that if the dollar's exchange value appreciates by 10 percent, imports would become, say, 6 percent more expensive to Americans while U.S.exports would become, say, 8 percent cheaper to foreigners.

According to the J-curve effect, currency depreciation

Empirical evidence regarding the effects of currency devaluation on the balance of trade indicates that

According to the Marshall-Lerner condition, currency depreciation would have a positive effect on a country's trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals

The ______ refers to the extent to which changing currency values result in changes in import and export prices.

According to the absorption approach, the economic circumstances that best warrant a currency devaluation is where the domestic economy faces

Appreciation of the dollar's exchange value worsens the international competitiveness of Boeing Inc., whereas a dollar depreciation improves its international competitiveness.

If a currency's exchange rate is overvalued, a government would likely initiate actions to revalue the currency.

The analysis of the effects of a currency depreciation on a country's trade balance include all of the following except

If foreign manufacturers cut manufacturing costs and profit margins in response to a depreciation in the U.S.dollar, the effect of these actions is to

If a currency's exchange rate is undervalued, a government would likely initiate actions to devalue the currency.

The pass-through effect refers to the extent that import prices and export prices adjust to currency devaluation.