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The Karma Computer Company has decided to open a Brazilian subsidiary. Analyze Karma's decision in terms of the theory of multinational enterprise.
Derive and graph Home's import demand schedule. What would the price of wheat be in the absence of trade?
Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade.
Determine the effect of the tariff on the welfare of each of the following groups: Home import-competing producers, Home consumers and the Home government.
Explain how you would figure out the dollar/pound exchange rate implied by Pit When might it be a bad idea to use the PPP theory in this way?
Explain how permanent shifts in national real money demand functions affect real and nominal exchange rates in the long run?
Continuing with the preceding problem, discuss how the transfer would affect the long-run nominal exchange rate between the Iwo currencies?
Where should the demand expansion cause a greater real currency appreciation, in the tariff-using country or in the quota-using country?
Explain how the nominal dollarkuro exchange rate would be affected by permanent changes in the expected rate of real depreciation of the dollar against the CUM?
What do you expect to happen to the real dollar/euro exchange rate over the next year?
What happens to the expected real interest rate? Explain why the subsequent path of the real exchange rate satisfies the real interest parity condition.
In teats of the Fisher effect. what would that pattern say about expected inflation and/or the expected future real interest rate?
In that case, will international real interest differentials be larger at short than at long maturities? Explain your reasoning.
Can you think of any forces that might help bring about long-run PPP for nontradble goods?
How does this affect the extent to which the exchange rate overshoots when the money supply first increases? Is it likely that the exchange rate mukrshoots?
How would you explain the apparently different responses of U.S. compared with Brazilian prices?
Imagine that the central bank of an economy with unemployment doubles its money supply. What if the interest rate was initially below its long-run level?
What is the shat-run effect on the exchange rate of an increase in domestic real GNP. given expectations about future exchange rates?
Suppose the dollar interest rate and the pound sterling interest rate are the same. 5 per cent per year. What is the new equilibrium Sit exchange rate?
Petroleum is sold in a world market and tends to be priced in U.S. dollars. How are its profits affected when the yen depreciates against the dollar?
A U.S. dollar costs 7.5 Norwegian kroner. but the same dollar can be purchased for 1.25 Swiss francs. What is the Norwegian krone/Swiss franc exchange rate?
If so, how would the differences affect the interest differential between, say, dollar and Mexican?
What additional factors in exchange rate determination might help you explain the second paragraph?
Determine the effect on the current dollar/euro exchange rate. assuming current interest rates on dollar and euro deposits do not change.
What would be the real rates of return on the assets in the preceding question if the price changes described. What is the new equilibrium Sit exchange rate?