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

Assume that a country operates at full employment.According to the absorption approach,the only way that currency depreciation can improve the country's trade balance is for the country to reduce domestic spending (absorption),thus freeing resources needed to produce additional export goods and import substitutes.

Assume that a country is operating at full employment.According to the absorption approach,the only way that currency depreciation can improve the balance of trade is for the country to implement

Suppose a country devalues its currency.If the country's demand for imports is ______,the price increase resulting from the devaluation results in a relatively large decrease in the volume of imports,causing to total import expenditures to decrease.

Suppose the U.S.price elasticity of demand for imports equals 0.4 and the foreign demand elasticity for the U.S.exports equals 0.2.According to the Marshall-Lerner condition,a depreciation of the dollar's exchange value will improve the U.S.balance of trade.

The J-curve effect implies that the price elasticity of demand for imports and exports is more elastic in the short run than in the long run.

The elasticity approach to currency depreciation emphasizes the relative price effects of depreciation and suggests that depreciation best improves a country's trade balance when the elasticities of demand for the country's imports and exports are high.

How is the absorption approach used for analyzing the effects of currency devaluation?

Table 14.1.Hypothetical Costs of Producing an Automobile for Toyota Inc.of Japan -Refer to Table 14.1.Assuming that Toyota obtains all inputs from Japanese suppliers and that the yen/dollar exchange rate is 200 yen per dollar.The dollar-equivalent cost of a Toyota automobile equals:

Suppose the exchange value of the franc rises against the currencies of Switzerland's major trading partners.To protect themselves from decreases in foreign sales caused by the mark's appreciation,Swiss companies could shift production to countries whose currencies had depreciated against the mark.

By decreasing the relative production costs of U.S.companies,a dollar appreciation tends to lower U.S.export prices in foreign-currency terms,which induces an increase in the amount of U.S.goods exported abroad.

Reversing balance of payments disequilibria may came at the expense of

According to the J-curve concept,which of the following is false--that the effects of a currency depreciation on the balance of payments are:

The Marshall-Lerner condition suggests that depreciation of the franc leads to a worsening of France's trade account if the:

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 dollar-equivalent cost of a Toyota automobile equals:

According to the J-curve effect,following a currency devaluation,the balance of trade improves before it worsens.

The ______ refers to the extent to which changing currency values result in changes in import and export prices.

The shift in focus toward imperfectly competitive markets in domestic and international trade questions the concept of:

If a currency's exchange rate is overvalued,a government would likely initiate actions to revalue the currency.

Which analysis considers the extent by which foreign and domestic prices adjust to a change in the exchange rate in the short run:

According to the J-curve effect,an appreciation of the yens exchange value has: