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

International monetary system, Q. How did the international monetary syste...

Q. How did the international monetary system influence macroeconomic policy-making and performance during the gold standard era (1870 - 1914)? Answer: London was the hub of t

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

Absolute Advantage trade Theory, Critically evaluate adam smith''s theory o...

Critically evaluate adam smith''s theory of absolute advantage, outlining the assumptions necessary for the theory. Criticism of the theory?

Float-rate regime against non-euro currencies, Q. Explain why after, say No...

Q. Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float

Compare and contrast economic regions, Compare and contrast China's newest ...

Compare and contrast China's newest economic regions: the Special Economic Zones (SEZs), Open Cities, and Open Coastal Areas. What is the purpose of each regional type? Show how e

Analyze the effects of an increase in the u.s. money supply, Q. Using a fig...

Q. Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of an increase in the U.S. money supply on the dollar/euro exchange rat

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