Exam 17: Output and the Exchange Rate in the Short Run

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An appreciating currency would tend to lower the price level and reduce the level of output. Is this statement true or false? Explain your answer.

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Question 1

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Demonstrate the effects of an appreciating currency on the price level in a country.

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Question 2

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The appreciation of a country's currency would cause exports to fall and imports to rise resulting in a current account deficit. As the current account moves into a deficit, the domestic economy's aggregate demand will decline as exports decline and imports increase. Equilibrium real GDP would fall and the price level also falls.

Suppose that GDP rose by ten percent and that imports only rose by one percent. Explain what this would imply about the income elasticity of the demand for imports.

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Question 3

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This would imply that the income elasticity of the demand for imports is equal to 0.1. The income change induces only a one-tenth of one percent change in imports.

An appreciation of the currency would tend to increase the percentage of GDP allocated to nontradable goods. Explain why this statement is true.

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Question 4

What is an exchange rate shock? Show the effects of this type of event on real GDP and the price level in the short run.

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Question 5

If CNBC reported today that the U.S. dollar depreciated one percent against the Euro, describe what this would mean for U.S. trade with the EU by referring to the concept of the price elasticity of demand for imports and exports.

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Question 6

Country X has an income elasticity of demand for exports and imports of one and three, respectively. If foreign income and domestic income both rose by the same amount, what would tend to happen to the trade balance?

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Question 7

Show how the depreciation of currency could lead to a higher price level.

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Question 8

Carefully describe how changes in foreign income tend to affect a country's exports.

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Question 9

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An appreciating currency would tend to lower the price level and reduce the level of output. Is this statement true or false? Explain your answer.

Demonstrate the effects of an appreciating currency on the price level in a country.

Suppose that GDP rose by ten percent and that imports only rose by one percent. Explain what this would imply about the income elasticity of the demand for imports.

An appreciation of the currency would tend to increase the percentage of GDP allocated to nontradable goods. Explain why this statement is true.

What is an exchange rate shock? Show the effects of this type of event on real GDP and the price level in the short run.

If CNBC reported today that the U.S. dollar depreciated one percent against the Euro, describe what this would mean for U.S. trade with the EU by referring to the concept of the price elasticity of demand for imports and exports.

Country X has an income elasticity of demand for exports and imports of one and three, respectively. If foreign income and domestic income both rose by the same amount, what would tend to happen to the trade balance?

Show how the depreciation of currency could lead to a higher price level.

Carefully describe how changes in foreign income tend to affect a country's exports.

Introduction: An Overview of the World Economy

Why Countries Trade

Comparative Advantage and the Production Possibilities Frontier

Factor Endowments and the Commodity Composition of Trade

Intraindustry Trade

International Factor Movements

Tariffs

Nontariff Distortions to Trade

International Trade Policy

Regional Economic Arrangements

International Trade and Economic Growth

National Income Accounting and the Balance of Payments

International Transactions and Financial Markets

Exchange Rates and Their Determination: A Basic Model

Money, Interest Rates, and the Exchange Rate

Price Levels and the Exchange Rate in the Long Run

Macroeconomic Policy and Floating Exchange Rates

Fixed Exchange Rates and Currency Unions

International Monetary Arrangements

Capital Flows and the Developing Countries

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