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

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 depreciation leads to a (an)____ in the peso cost of a Ford vehicle and a (an)____ in the dollar cost of a Ford compared to the cost changes that occur when all input costs are dollar denominated.

Table 14.1.Hypothetical Costs of Producing an Automobile for Toyota Inc.of Japan -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 yen cost of a Toyota automobile equals:

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:

The Marshall-Lerner condition illustrates

If foreign manufacturers cut manufacturing costs and profit margins in response to a depreciation in the U.S.dollar,the effect of these actions is to:

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.

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

The Marshall-Lerner condition deals with the impact of currency depreciation on:

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

The lag that occurs between changes in relative prices and the quantities of goods traded is the

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 absorption approach to currency depreciation is represented by one of the following equations:

How do movements in exchange rates affect domestic costs,in the presence of foreign sourcing?

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

Assume the Canadian demand elasticity for imports equals 1.2,while the foreign demand elasticity for Canadian exports equals 1.8.Responding to a trade deficit,suppose the Canadian dollar depreciates by 10 percent.For Canada,the depreciation would lead to a(n):

What is a pass-through relationship?

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:

The purpose of currency devaluation is to cause a depreciation in a currency's exchange value.

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