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

FOREX, part of the return on the investment comes from the asset itself and...

part of the return on the investment comes from the asset itself and part from the currency of the foreign currency. agree or disagree?

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

Explain why the exchange rate model, Q. Explain why the exchange ra...

Q. Explain why the exchange rate model based on PPP is a long-run theory. Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for

Trading, suppose that France has a trade surplus with the united kingdom, w...

suppose that France has a trade surplus with the united kingdom, what would you expect to happen to price,wages, and commodity price in France? why? what would happen to the terms

Eco, Ask questionQuestion 1: Compute various indicators of the state of the...

Ask questionQuestion 1: Compute various indicators of the state of the labour market using the following information. Please show all steps of your calculation. If you do not, you

Expansion of international trade, Q. Even though it is very clear in the c...

Q. Even though it is very clear in the context of the Specific Factors model that an expansion of international trade will make losers as well as winners, economists still claim t

Comparative advantage in the land-intensive product, Q. Factor-intensity r...

Q. Factor-intensity reversals define a situation in which the production of a product can be land-intensive in one country, and relatively labor intensive in another ( at given re

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

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.

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