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

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

According to the J-curve effect, currency depreciation:

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

According to the absorption approach, currency devaluation best improves a country's trade balance when its economy is at maximum capacity.

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:

Table 14.1. Hypothetical Costs of Producing an Automobile for Toyota Inc. of Japan Cast Campanent Yen Cost Dollar-Equivalent Cost Labar 1,200,000 Materials Steel 800,000 Other materials 1,600,000 Tatal material casts 2,400,000 Other casts 400,000 Total costs 4,000,000 -Refer to Table 14.1. Assume that Toyota Inc. imports steel from U.S. suppliers, whose costs are denominated in dollars, while all other inputs are obtained from Japanese suppliers whose costs are denominated in yen. 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 Marshall-Lerner approach, a currency depreciation will best lead to an improvement on the home country's trade balance when the:

Suppose the dollar appreciates 10 percent against the Swiss franc. According to the J-curve effect, the U.S. balance of trade will initially worsen, but then improve as time passes.

In the early 1990s, the yen sharply appreciated against the dollar. To protect themselves from export reductions caused by the yen's appreciation, Japanese auto companies transferred increasing amounts of auto production from the United States to Japan.

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.

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.

The effect of currency depreciation on the purchasing power of money balances and the resulting impact on domestic expenditures is emphasized by the:

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.

American citizens planning a vacation abroad would welcome:

Appreciation of the dollar's exchange value worsens the international competitiveness of Boeing Inc., whereas a dollar depreciation improves its international competitiveness.

As yen-denominated costs become a larger portion of Ford's total costs, a dollar appreciation results in a smaller increase in the yen-denominated cost of a Ford auto than occurs when all input costs are dollar denominated.

A depreciation of the dollar results in Whirlpool dishwashers becoming less competitive in Europe.

Which approach analyzes a nation's balance of payments in terms of money demand and money supply?

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

Which approach predicts that if an economy operates at full employment and faces a trade deficit, currency devaluation (depreciation) will improve the trade balance only if domestic spending is cut, thus freeing resources to produce exports?