Effects on exchange rate in british pound and japanese yen

Reference no: EM1374390

Suppose the government cuts its purchases through $120 billion. As a result, budget deficit is decreased by $40 billion, private domestic saving reduced by $10 billion, disposable personal income decreases by $80 billion and the trade deficit is reduced by $15 billion. By how much has national income (Y) changed?

Using demand and supply analysis to assist you, what are the effects on the exchange rate between the British pound and the Japanese yen from:
a. an increase in Japanese interest rates?
b. an increase in the price of British goods?
c. an increase in British interest rates?

Consider a country that initially consumes 100 pairs of shoes per hour, all of which are imported. The price of shoes is $40 per pair before a ban on importing them is imposed. Use a graph to explain what happens to the price of shoes and the quantity of shoes consumed after a total ban on imports.

Reference no: EM1374390

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