Exchange rate determination, International Economics

Assignment Help:

Q. Describe the chain of events leading to exchange rate determination for the following cases:

1. An increase in the U.S money supply
2. An increase in the growth rate of the U.S money supply
3. An increase in world relative demand for U.S products
4. An increase in relative U.S output supply

Answer: The chain of events most important to exchange rate determination:

The spot exchange rate is equivalent to the real exchange rate times the ratio of U.S. to European price levels.

Enhance in U.S money supply that the price level in the U.S rises in proportion to the money supply the real exchange rate remains the same. All dollar prices will increase including the dollar price of the euro.

Increase in growth rate of U.S money supply that dollar interest rate, the inflation rate, price level in the U.S and spot exchange rate increase in proportion to the enhance in the price level in the U.S

Increase in world relative demand for U.S products: E decrease and q does as well.

Raise in relative U.S output supply: The dollar depreciates and lowering the relative price of U.S output. The real exchange rate increase the effect on E isn't clear since the real exchange rate and the price level in the U.S work in opposite directions.


Related Discussions:- Exchange rate determination

What are the benefits and costs of a monetary union, The first African Econ...

The first African Economists Congress organized by the African Union concentrated on the creation of a monetary union and the introduction of single currency in Africa. (a) Ref

FREE TRADE AND PROTECTIONISM, WHY IS INTERNATIONAL TRADE IMPORTANT FOR SOUT...

WHY IS INTERNATIONAL TRADE IMPORTANT FOR SOUTH AFRICA

Present the case against floating exchange rates, Q. Present the case again...

Q. Present the case against floating exchange rates. Answer: 1.The discipline obligatory on individual countries by a fixed rate would be lost. 2. Undermine specu

Haberler, Opportunity cost theory

Opportunity cost theory

report on internationally competing firms , Investment analysis report on ...

Investment analysis report on internationally competing firms Students will be organized randomly into small groups (typically 6), and will prepare an investment analysis of c

Explain effects of change in u.s. expected inflation, To answer the followi...

To answer the following question, please refer to the figure below. Concentrating only at the lower right quadrant, discuss the effects of a change in U.S. expected inflation.

What is the national income identity for a closed economy, Q. What is the ...

Q. What is the national income identity for a closed economy? Answer: Y = C + I + G.

How the timing of a balance of payment crisis is determined, Q. Explain how...

Q. Explain how the timing of a balance of payment crisis is determined.  Be careful to state all assumptions.   Answer:  The assumptions of the model are: Prices are el

How to keep the exchange rate fixed, Q. If the central bank does not purcha...

Q. If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at E 0 ? An

Opportunity cost, what are the different forms of opportunity cost theory

what are the different forms of opportunity cost theory

Write Your Message!

Captcha
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!

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