Which of the following will result from the depreciation of...

Which of the following will result from the depreciation of the US dollar relative to other currencies? [select all that apply] an increase in imports by US citizens a decrease in US net exports an increase in the price, in terms of the other currencies, of US goods a decrease in the price, in terms of other currencies, of US goods an increase in US net exports

Transcript

00:02 A, inflation in the united states exceeds the inflation in taiwan.

00:06 So to know whether the net exports of us will increase or not, we need to understand what happens to the real exchange rate between us and taiwan's currency.

00:17 The real exchange rate is the nominal exchange rate times the price level in the us divided by the price level in taiwan.

00:48 So when the inflation is higher in the us compared to taiwan, the real exchange rate will increase because the price level in the us increases.

01:25 And when the real exchange rate increases, it means for every unit of us export that the people will have to pay more or taiwan produce goods.

01:34 And as a result, us exports will decrease.

01:38 And also when the real exchange rate increases, the imports for us citizens from taiwan becomes cheaper, so imports will increase.

01:47 So the net exports of the us will decrease in this case.

02:03 Part b, the yen to dollar exchange rate decreases from 120 yen to dollar to 95 yen to dollar.

02:11 So the nominal exchange rate decreases from 121 yen to dollar to 95 yen to dollar.

02:18 It means the us dollar becomes cheaper for japanese people.

02:36 And as a result, the cost of us exports in japan falls since now they'll have to pay less amount in terms of yen.

02:55 So this will increase the demand for us exports in japan.

03:10 And also when the exchange rate falls, it means that now the us will have to pay more for the same amount of yen imports.

03:17 And as a result, imports will decrease.

03:20 The net effect will be that the net exports of the us will increase.

03:37 Part c, the growth rate of chinese gdp exceeds the growth rate of us gdp...

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