Exam 13: Mechanisms of International Adjustment

The effect of currency depreciation on the purchasing power of money balances and the resulting impact on domestic expenditures is emphasized by the

Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production of automobiles.If the dollar's exchange value appreciates by 10 percent against the yen, the yen-denominated cost of a GM vehicle falls by 10 percent.

Assume that Ford Motor Company obtains some of its inputs in Mexico (foreign sourcing).As the peso becomes a larger portion of Ford's total costs, a dollar appreciation leads to a _______ in the peso cost of a Ford vehicle and a _______ in the dollar cost of a Ford compared to the cost changes that occur when all input costs are dollar denominated.

Empirical research suggests that the U.S.price elasticities of demand for imports and exports are very inelastic, suggesting that currency depreciation would result in a worsening of it's balance of trade.

According to the Absorption approach, after a currency depreciation, which of the following causes a trade deficit to decrease?

As yen-denominated costs become a larger portion of Ford's total costs, a dollar appreciation results in a smaller increase in the yen-denominated cost of a Ford auto than occurs when all input costs are dollar denominated.

The dominant use of dollars in invoicing U.S.trade helps explain the partial pass-through of changes in the dollar's exchange rate to U.S.import prices.

The Marshall-Lerner condition deals with the impact of currency depreciation on

The J-curve effect implies that following a currency appreciation, a country's trade balance

The absorption approach to currency depreciation is represented by which of the following equations?

According to the Absorption approach, a currency depreciation leads to an improvement in the balance of trade when a country

The absorption approach to currency devaluation deals with the income effects of devaluation while the elasticity approach to devaluation deals with the price effects of devaluation.

Complete currency pass-through arises when a 10 percent depreciation in the value of the dollar causes U.S.________prices to __________.

Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production of automobiles.If the dollar's exchange value depreciates by 10 percent against the yen, the yen-denominated cost of a GM vehicle rises by 10 percent.

Which approach analyzes a nation's balance of payments in terms of money demand and money supply?

Suppose the exchange value of the franc rises against the currencies of Switzerland's major trading partners.To protect themselves from decreases in foreign sales caused by the mark's appreciation, Swiss companies could shift production to countries whose currencies had depreciated against the mark.