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

Given favorable elasticity conditions,a depreciation of the lira tends to result in:

According to the absorption approach,an increase in domestic expenditures must occur for currency devaluation to promote balance of trade equilibrium.

When manufacturing automobiles,suppose that General Motors uses labor and materials whose costs are denominated in dollars and pounds respectively.If the dollar's exchange value appreciates by 15 percent against the pound,the pound-denominated cost of a GM vehicle rises by 15 percent.

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

Suppose the U.S.economy is operating at full capacity and the dollar's exchange value depreciates.According to the absorption approach,the United States would have to accept reductions in domestic spending if the U.S.trade balance is to improve as a result of the depreciation.

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 Ford Motor Company obtains some of its inputs in Mexico (foreign sourcing).As the peso becomes a larger portion of Ford's total costs,a dollar appreciation leads to a ____ in the peso cost of a Ford vehicle and a ____ in the dollar cost of a Ford compared to the cost changes that occur when all input costs are dollar denominated.

By increasing relative U.S.production costs,a dollar depreciation tends to increase U.S.export prices in foreign-currency terms,which results in an increase in the quantity of U.S.goods exported abroad.

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

Figure 14.1 US market for Imported Toyotas -In Figure 14.1,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 MC₁ represents

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:

When manufacturing computer software,suppose that Microsoft Inc.uses labor and materials whose costs are denominated in dollars and francs respectively.If the dollar's exchange value depreciates 10 percent against the franc,the franc-denominated cost of the firm's software falls by 10 percent.

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

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

Reversing balance of payments disequilibria may came at the expense of

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

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

An appreciation of the U.S.dollar tends to:

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?