Exchange rate determination, International Economics

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.

Posted Date: 6/27/2013 3:20:39 AM | Location : United States







Related Discussions:- Exchange rate determination, Assignment Help, Ask Question on Exchange rate determination, Get Answer, Expert's Help, Exchange rate determination Discussions

Write discussion on Exchange rate determination
Your posts are moderated
Related Questions
Q. What types of international transactions are recorded in the balance of payment accounts? Answer: Three kinds' transactions that involve exports and imports of goods and s

Explain Purchasing Power Parity.   Answer:  PPP ( ) states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels. A decr

In a day of production, firms in angola can produce 200 liters of oil or 10 kilograms of tungsten. Firms in Namibia can produce 160 liters of oil or 60 kilograms of tungsten. Which

Q. What are the three types of transactions between the residents of different countries? Answer: 1. Trades of services and goods for goods or services. 2

Q. Explain why East Asian countries have done so well relative to South American countries. Answer: Generally the reasons are less moral hazard less government debt to forei

What are disadvantages the classical theory of international trade

Write notes on opportunity cost by Haber lal

argument about fair distribution of income and gnp as a measurment of economic growth

Q. Explain the Law of One Price. Give an example. Answer: The law of one price affirms that in competitive markets free of transportation costs and trade barriers ide

What will be the effects of an increase in real national income on the interest rate? Answer: An enhance in real national income will increase the interest rate.  If investment