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 Marshall-Lerner condition,a currency depreciation is least likely to lead to an improvement in the home country's trade balance when:

Suppose the U.S.price elasticity of demand for imports equals 1.2 and the foreign elasticity of demand for U.S.exports equals 1.5.According to the Marshall-Lerner condition,an appreciation of the dollar's exchange value would worsen the U.S.balance of trade.

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

According to the Marshall-Lerner condition,currency depreciation has no effect on a country's trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals:

Assume an economy operates at full employment and faces a trade deficit.According to the absorption approach,currency devaluation will improve the trade balance if domestic:

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.

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:

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:

Reversing balance of payments disequilibria may came at the expense of

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

The absorption approach to currency depreciation focuses on the

The purpose of currency revaluation is to cause an appreciation in a currency's exchange value.

Partial currency pass-through implies that if the dollar's exchange value appreciates by 10 percent,imports would become,say,6 percent more expensive to Americans while U.S.exports would become,say,8 percent cheaper to foreigners.

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:

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 dollar-equivalent cost of a Toyota automobile equals:

The ____ effect suggests that following a currency depreciation a country's trade balance worsens for a period before it improves.

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.

The J-curve effect implies that following a currency appreciation,a country's trade balance:

Because of the J-curve effect and partial currency pass-through,a depreciation of the domestic currency tends to increase the size of a: