Homework 8
Introduction to Macroeconomics ECO221 Fall 2021
Instructor Wenne
Points 20
Due Sunday, Nov. 14, 11:59 pm
Chapter 35
XXXXXXXXXXUsing supply and demand curves for both the U.S. dollar and the Japanese yen, show how the following events would affect the exchange rate between the two cu
encies, under a system of floating rates. (That is to say, show the exchange rate changes from both the Japanese and the American perspectives. In your supply and demand diagrams have Price of Dollar in Yen on y axis in one graph and Price of Yen in Dollar on the y axis of second graph, then draw your S and D curves for number of Dollars on x axis in first graph and Number of Yen on second graph on x axis. Remember you are looking at the same situation from two different perceptions American first graph, Japanese second graph.)
a) The Japanese GDP grows faster than the American.
b) The American inflation rate exceeds the Japanese,
c) Responding to new models, American consumers shift their preferences from imported Japanese automobiles to domestically produced automobiles.
d) The Bank of Japan tightens its monetary policy to raise interest rates.
e) There is an increased flow of Japanese investment funds into the United States.
Chapter 36
1. Initially, real interest rates in the United States, England, and Japan are all equal, at 5 percent. Then the central banks alter their policies, so that the American interest rate rises to 6 percent, the Japanese rate falls to 4 percent, and the British rate stays at 5 percent.
a) How would you predict that capital flows among the three countries would change?
b) Using supply and demand curves, show how the exchange rates are likely to change.
c) How do you expect the balance of trade in the three countries to change?
XXXXXXXXXXIf the U.S. government tried to raise the rate of national economic growth much higher than the growth rate of the rest of the world’s economy, how would the international trade sector transmit inflationary pressures to the U.S. economy? If the rest of the world raised its growth rate to the high American level, would these inflationary pressures persist? Use supply and demand curves for the dollar to explain your answer. What do you conclude about the desirability of coordinating economic policies among trading partners?