User Account

All Pages

What happens to the quantity of net exports

Assignment Help Econometrics
Reference no: EM131040081

Assignment 4& 5

1. Suppose the French suddenly develop a strong taste for California wines. Answer the following questions in words and with a diagram.

a. What happens to the demand for dollars in the market for foreign currency exchange? DEMAND FOR DOLLARS INCREASES

b. What happens to the value of dollars in the market for foreign currency exchange?
RISES

c. What happens to the quantity of net exports? NX INCREASES

2. Suppose the United States decides to subsidize the export of U.S. agricultural products, but it does not increase taxes or decrease any other government spending to offset this expenditure. Using a 3-panel diagram, show what happens to national savings, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance. Also explain in words how the U.S. policy affects the amount of imports, exports and net exports.

a. FIGURE 6

3. Suppose that reasl interest rates increase across Europe. Explain how this development will affect net capital outflow. Then explain how it will affect US net exports by using a formula from this chapter and drawing a diagram. What will happen to the US real interest rate and the real exchange rate.

a. NCO BECOMES NEGATIVE FOR EUROPE, REDUCES SUPPLY OF EUROS, MAKES EUROPEAN ASSETS MORE ATTRAC TIVE

b. INCREASES US NCO FOR ANY INTEREST RATE, SUPPLY OF DOLLARS INCREASES MORE PEOPLE TRYING TO BUY EUROS, DEMAND FOR LOANABLE FUNDS INCREASES MORE PEOPLE TRYING TO GET LOANS TO GET EUROPEAN ASSETS, INTEREST RATES RISE. EXCHANGE RATE FALLS.

4. A case study in the chapter analyzed purchasing power parity for several countries using the price of big macs. Here is the data for a few more countries: (Country, price of a big mac in that countries currency, predicted exchange rate, actual exchange rate): (chile, 2050 pesos, ? peso/$, 472peso/$), (Hungary, 830 forints, ?forints/$, 217 forits/$), (Czech republic,70 korunas, n?korunas/$, 18.9 korunas/$), (Brazil, 11.25 real, ?real/$, 1.99real/$), (Canada, 5.41C$, ?C$/$, 1.00 C$/$).

a. For each country, compute the predicted exchange rate of the local currency per U.S. dollar. (Recall that the U.S. price of a big mac was $4.37.)
PESO=(472*4.37)/2050

b. According to the purchasing power parity, whaT is the predicted exchange rate between the Hungarian forint and the canadian dollar? What is the actual exchange rate?

c. How well does the theory of purchasing power parity explain exchange rates?

5. A can of soda costs $1 in the United States and 16 pesos in Mexico. What is the peso-dollar exchange rate if purchasing-power parity holds? If a monetary expansion caused all prices in Mexico to double, so that the soda rose to 32 pesos, what would happen to the peso-dollar exchange rate?

6. How would the following transactions affect US net capital outflow? Also state whether each involves direct investment or portfolio investment.

a. An American cellular phone company establishes an office in the Czech republic.

b. Harrods of London sells stock to the general electric pension fund.

c. Honda expands its factory in Marysville ohio.

d. A fidelity mutual fund sells its volkswagon stock to a French investor.

7. If the tax rate is 40%, compute the before tax real interest rate in each of the following cases.

a. Nominal interest rate is 10%, and the inflation rate is 5%.

b. Nominal interest rate is 6% and the inflation rate is 2%

c. Nominal interest rate is 4% and inflation is 1%

8. Suppose that people expect inflation to equal 3% but in fact prices rise by 5%. Describe how this unexpectedly high inflation rate would help or hurt the following:

a. The government

b. A homeowner with a fixed rate mortgage

c. A union worker in the second year of a labor contract

d. A college that has invested some of its endownment on government bonds

9. It is sometimes suggested that the fed should try to achieve zero inflation. If we assume that velocity is constant, does this zero inflation goal require that the rate of money growth equal 0? If yes explain why. If no, explain what the rate of money grown should equal.

Reference no: EM131040081

Questions Cloud

Expansionary and contractionary fiscal policies : Begin by explaining fiscal policy. Describe expansionary and contractionary fiscal policies. Identify the situations in which expansionary fiscal policy and contractionary fiscal policy would be used.
Which term refers to a market dominated by a few companies : Support for government assistance programs that form a "social safety net" is typically given by?
Restricting their task outputs to minimum acceptable levels : Mariel Espinoza has just been appointed manager of a production team operating the 11 p.m. to 7 a.m. shift in a large manufacturing firm. An experienced manager, Mariel is pleased that the team members seem to really like and get along well with one ..
What led to greater emphasis on iprs : What led to greater emphasis on IPRs? What kinds of inventions can be protected? What are the Major Changes in India's Patent Law?
What happens to the quantity of net exports : What happens to the value of dollars in the market for foreign currency exchange?
Past when political leadership had called for such reforms : Social security reform is needed; however, in the past when political leadership had called for such reforms, there was a groundswell of opposition to any efforts at reforming this particular entitlement. Discuss why this might be so in America?
The taxpayermet that supports government : Family caregivers save the government (and the taxpayer that supports government programs) significantly; should a program of compensation to families be created that would serve as an incentive to avoid institutionalization of elderly or handicapped..
Basic economic functions of federal reserve system : a) Identify and briefly explain the two basic economic functions of the Federal Reserve System. b) Briefly explain the key actions the Fed undertook when performing each of these functions during and in the years after the financial crisis of 20..
Question regarding the aggregate demand : a) What would we expect this to do to aggregate demand? What component of AD (C, I, etc.) would the tax rebate impact most directly? Explain why. b) Is this an example of the use of fiscal policy or monetary policy?

Reviews

Write a Review

Econometrics Questions & Answers

  Suppose you are currently earning 15 an hour if the

suppose you are currently earning 15 an hour. if the inflation rate over the current year is 10 percent and your firm

  Determine what is the amount of the final payment

A $150 bicycle was purchased on Dec 1 with a $15 downpayment. The balance is to be paid at the rate of $10 at end of each month, with the first payment due on Dec 31. The last payment may be some amount less than $10.

  Should magee increase or decrease the price of pie

Finally, suppose for part c only that you now have the additional information that the marginal cost to Magee's of making one transparent pie is $2 (and is constant). Magee's currently charges $5 for each transparent pie.

  What should do to maximize samanthas total utility

In a month, Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units. The price of a lobster dinner is $25. She also is consuming the quantity of spaghetti dinners so that its marginal utili..

  How many visits will physicians provide to public

The state Medicaid agency has set a rate of $5.50 per visit for all Medicaid enrollees who visit a physician. Each physician also has private paying patients. The demand curve for each physician can be characterized as follows, and physicians can ..

  What is the interest rate for buying versus leasing

A bulldozer can be purchased for $380,000 and used for 6 years, when its salvage value is 15% of the first cost. Alternatively, it can be leased for $60,000 a year. Remember that lease payments occur at the start of the year.

  How many of each will jane purchase

In each case, draw a budget line that shows her available choices, and indicate her best choice by adding indifference curves. Assume that Jane only cares about the number of peanuts, and not about the size of the bag.

  What are the banks required and excess reserves

Suppose that a bank currently has assets of $24,000 in reserves and $176,000 in loans and liabilities of $200,000 in deposits. If the required reserve ratio is 10%, what are the bank's required and excess reserves

  What is the price tad receives for selling the bait

Tad's bait shop has a monopoly on the bait market at Sanderson's Lake. The demand curve for bait is QD = 56 - 8P -> P = 7 - 18 QD. This implies the marginal revenue function is: MR(Q) = 7 - 14 Q. Tad has two employees he can use to search for bait..

  What price-quantity combination maximizes revenue

You are the manager of a monopoly, and your demand and cost functions are given by P= 200 - 2Q and C(Q)= 2000 + 3Q^2, respectively. a. what price-quantity combination maximizes your frm's profits b. calculate the maximum profits.

  Show the budget constraints after trade

If R and F both have 12 hours of labor that they can give to catching fish or goats, and R requires 1 hour to catch a fish and 2 hours to catch a goat, F requires 6 hours to catch a fish and 3 hours to catch a goat. They are able to trade at Pf=Pg..

  Find nominal interest rate and equilibrium quantity of loans

show what happens to the nominal interest rate and the equilibrium quantity of loans when both borrowers and lenders increase their estimates of the expected inflation rate from 5 percent to 10 percent.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd