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What is the price of a bratwurst in terms of hot dogs? All else equal, how does this relative price change if the dollar appreciates to $1.25 per euro?
Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per year. What is the new equilibrium $/£ exchange rate?
Compute the effect on the current dollar/euro exchange rate, assuming current interest rates on dollar and euro deposits do not change.
Suppose the dollar exchange rates of the euro and yen are equally variable. As a U.S. resident, which currency, the euro or the yen, would you consider riskier?
Do you have any guesses about how the liquidity of euro and yen deposits may be changing over time?
Calculate velocity for the two countries in 1985. Why do you think velocity was so much higher in Brazil?
Calculate the 1984-1985 rates of money supply growth and inflation for the United States and Brazil, respectively.
Why do governments typically institute currency reforms in connection with broader programs aimed at halting runaway inflation?
What is the short-run effect on the exchange rate of an increase in domestic real GNP, given expectations about future exchange rates?
How would you expect a fall in a country's population to alter its aggregate money demand function?
What is the forward premium on euro? What is the difference between the interest rate on one-year dollar deposits and that on one-year euro deposits?
How would such a tax alter the analysis of the interest parity condition? How does answer change if tax applies to interest earnings but not to capital gains?
Suppose that instead of 1200 workers, Home had 2400. Find the equilibrium relative price. What can you say about the efficiency of world production?
Japanese labor productivity is roughly the same as that of the United States in the manufacturing sector. What is wrong with this argument?
How does the fact that many goods are nontraded affect the extent of possible gains from trade?
Which of the explanations of failure of factor price equalization might account for this?
In the discussion of empirical results on the Heckscher-Ohlin model, we noted. Explain how efficiency would affect the concept of factor price equalization.
Counterpart to immobile factors on the supply side would be lack of substitution. Show that an improvement in the terms of trade benefits this economy, as well.
Why, then, do most economists regard immiserizing growth, where growth actually hurts the growing country, as unlikely in practice?
In practice much foreign aid is tied; that is, it comes with restrictions. Can you think of a scenario in which tied aid actually makes the recipient worse off?
Using the analysis of the transfer problem, how do you think this should affect the prices of Western European goods relative to those from the US and Japan?
Suppose that one country subsidizes its exports and the other country imposes. What happens to the terms of trade? What about welfare in the two countries?
In perfect competition, firms set price equal to marginal cost. Why isn't this possible when there are internal economies of scale?
Explain this tendency of industrial clusters to break up in terms of the theory of external economies.
Then, using the analysis, show that a tariff by one country will create an incentive for labor migration.