Question

For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency. 1. American- made cars become more popular overseas 2. The United States experiences recession, while other nations enjoy economic growth. 3. Inflation rate accelerates in the United States, while inflation rates remain constant in the other nations. 4. Real interest rates in the United States rise, while real interest rates abroad remain constant. 5. The Japanese put quotas and high tariffs on all imports from the United States.

          For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency.
1. American- made cars become more popular overseas
2. The United States experiences recession, while other nations enjoy economic growth.
3. Inflation rate accelerates in the United States, while inflation rates remain constant in the other nations.
4. Real interest rates in the United States rise, while real interest rates abroad remain constant.
5. The Japanese put quotas and high tariffs on all imports from the United States.

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Added by William G.

Principles of Economics

Gregory Mankiw 8th Edition

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Solved by Expert Crystal Wang

10/11/2022

Step 1

This results in an increase in demand for the dollar, causing the demand curve for dollars to shift to the right. As a result, the equilibrium exchange rate for the dollar in terms of foreign currency increases. ** Show more…

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For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency. 1. American- made cars become more popular overseas 2. The United States experiences recession, while other nations enjoy economic growth. 3. Inflation rate accelerates in the United States, while inflation rates remain constant in the other nations. 4. Real interest rates in the United States rise, while real interest rates abroad remain constant. 5. The Japanese put quotas and high tariffs on all imports from the United States.

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00:01 For each of the following, indicate the direction of a shift in the supplier demand curve for dollars, the factor causing the change and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency.

00:16 For one, american -made cars become more popular overseas.

00:20 So in this case, exports increase.

00:27 If a country exports more than it imports, there's a high demand for its goods.

00:32 So it would make sense that there would be an increase in demand for the dollar.

00:53 So let's show how the exchange rate changes.

01:00 So on the horizontal axis, we have quantity of u .s.

01:07 Dollars.

01:09 Then on this axis, we have price of dollar in terms of foreign currency.

01:25 So our demand curve is shifting to the right because demand for the dollar goes up.

01:34 You can see that initially we have our equilibrium exchange rate here and then it has increased.

01:41 So now the dollar is worth more.

01:46 It can be exchanged for more of the foreign currency.

01:55 The united states experiences recession while all other nations enjoy economic growth.

02:06 During recession, inflation goes down.

02:18 This is going to help the united states become more competitive, and it may increase demand for the currency.

02:31 So inflation is essentially price level.

02:38 If prices fall, this would make sense...

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