Exam 14: Exchange Rate Adjustments and the Balance-of-payments

Table 14.1.Hypothetical Costs of Producing an Automobile for Toyota Inc.of Japan -Refer to Table 14.1.Assume that Toyota Inc.obtains all of its automobile inputs from Japanese suppliers.If the yen's exchange value appreciates from 200 yen = $1 to 100 yen = $1,the yen cost of a Toyota automobile equals:

Assume that Ford Motor Company obtains all of its inputs in the United States and all of its costs are denominated in dollars.An appreciation of the dollar's exchange value:

The pass-through effect refers to extent that import prices and export prices adjust to currency devaluation.

Figure 14.2The US Market for Imported Toyotas -In Figure 14.2,D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the US market.A shift in the marginal cost curve from MC0 to MC2 leads to

According to the absorption approach,the economic circumstances that best warrant a currency devaluation is where the domestic economy faces:

Figure 14.2The US Market for Imported Toyotas -In Figure 14.2,D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing Toyotas.A shift in the marginal cost curve from MC0 to MC2 represents

The shorter the pass-through period,the sooner the impact of devaluation on export prices and import prices.

The time period that it takes for companies to increase output of commodities for which demand has increased due to currency depreciation is known as the:

From 1985 to 1988 the U.S.dollar depreciated over 50 percent against the yen,yet Japanese export prices to Americans did not come down the full extent of the dollar depreciation.This is best explained by:

Currency devaluation is initiated by governmental policy rather than the free-market forces of supply and demand.

The Marshall-Lerner condition suggests that if the sum of a country's elasticity of demand for imports and the foreign elasticity of demand for the country's exports exceeds 1.0,an appreciation of the country's exchange rate will worsen its balance of trade.

Which of the following is true for the J-curve effect? It:

When producing jetliners,suppose that Boeing employs labor and materials whose costs are denominated in dollars and marks respectively.If the dollar's exchange value depreciates 20 percent against the mark,the mark-denominated cost of a Boeing jetliner falls by an amount less than 20 percent.

Assume that General Motors employs labor and materials,whose costs are denominated in dollars,in the production of automobiles.If the dollar's exchange value depreciates by 10 percent against the yen,the yen-denominated cost of a GM vehicle rises by 10 percent.

According to the Marshall-Lerner condition,currency depreciation would have a positive effect on a country's trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals:

The monetary approach emphasizes the effects of currency depreciation on the purchasing power of money,and the resulting impact on domestic expenditure levels.

The longer the currency pass-through period,the ____ required for currency depreciation to have the intended effect on the trade balance.

American citizens planning a vacation abroad would welcome:

What is a pass-through relationship?

The desire of foreign producers to preserve market share for goods sold in the United States helps contribute to complete exchange-rate pass-through following a depreciation of the dollar.