Question

In: Economics

Changes in the value of a nation’s currency affect the nation’s net exports, and thus GDP....

Changes in the value of a nation’s currency affect the nation’s net exports, and thus GDP. How might this make a large country, like the US, more willingly to adopt a flexible exchange rate regime than a small country, like Belgium.

Solutions

Expert Solution

GIVEN THAT:

FREE FLOATING EXCHANGE RATE:

Refers to the exchange rate where market runs according to demand and supply of currency and government don't intervene.

WHY US HAS MORE WILL TO ADOPT FLEXIBLE EXCHANGE RATE AND WHY SMALLER COUNTRY RESIST...

1.It enables the exchange rates to automatically adjust according to market needs, demands and supply.

2. It cushions the impact of large swings in demand and supply.

3. It insulates the economy from the negative impact of international events .

HOWEVER SMALL COUNTRY ARE APPREHENSIVE REGARDING FREE FLOATING BECAUSE:

1. Floating Exchange Rate are unpredictable and unstable.

2. It increases foreign exchange volatility

3. Business investment and planning are risky as one is not certain about future exchange rates.

4. Extreme appreciation and depreciation of currency calls for government intervention thus, managed floating is adopted .

​​​​​​

Rahul Sunny answered 4 months ago
Next > < Previous

Related Solutions

How does speculation in currencies affect the value of a nation’s currency?
How does speculation in currencies affect the value of a nation’s currency?
If the value of a nation’s imports exceeds the value of its exports, which of the...
If the value of a nation’s imports exceeds the value of its exports, which of the following is NOT true? a. Net exports are negative. b. GDP is less than the sum of consumption, investment, and government purchases. c. Domestic investment is greater than national saving. d. The nation is experiencing a net outflow of capital.
Explain how net exports affect the U.S. economy. Describe both negative and positive impacts on GDP....
Explain how net exports affect the U.S. economy. Describe both negative and positive impacts on GDP. Why do national income accountants use net exports to compare GDP, rather than simply adding exports to the other expenditure components of GDP?
Economic exposure is based on extent to which currency changes affect a. value of firm's balance...
Economic exposure is based on extent to which currency changes affect a. value of firm's balance sheet assets & liabilities b. market value of the firm                                                        c. netting of cash flows across subsidiaries of companies d. a firm’s financial statements
Identify 3 factors associated with international trade that affect the demand for a currency (and thus...
Identify 3 factors associated with international trade that affect the demand for a currency (and thus its foreign exchange rate).
Consider the factors that affect the net exports and the net capital outflow and discuss why...
Consider the factors that affect the net exports and the net capital outflow and discuss why these two magnitudes are equal. If you consider that Turkey, has a low savings rate, which variable is to change and how would this affect the nominal and real exchange rates?
Components of GDP: Consumption, Investment, Government purchases, Net Exports What components of GDP (if any) would...
Components of GDP: Consumption, Investment, Government purchases, Net Exports What components of GDP (if any) would each of the following transactions affect? Explain. Copy and paste your answers below. 1. A family buys a new refrigerator. 2. Aunt Jane buys a new house. 3. Ford sells a mustang from its inventory. 4. You buy a pizza. 5. California repaves Highway 101. 6. Your parents buy a French bottle of wine. 7. Honda expands its factory in Marysville, Ohio. 8. I...
Describe how the following transactions would affect U.S. exports, imports, and net exports: Students in Prague...
Describe how the following transactions would affect U.S. exports, imports, and net exports: Students in Prague flock to see the latest movie from Hollywood. Mrs. Jones in Philadelphia buys a new Volvo. The student bookstore at Oxford University in England sells a copy of a U.S. printed/authored textbook A Canadian citizen shops at a store in northern Vermont to avoid Canadian sales taxes. An American art professor spends the summer touring museums in Europe. Please do not copy one of...
Describe how the following transactions would affect U.S. exports, imports, and net exports: Students in Prague...
Describe how the following transactions would affect U.S. exports, imports, and net exports: Students in Prague flock to see the latest movie from Hollywood. Mrs. Jones in Philadelphia buys a new Volvo. The student bookstore at Oxford University in England sells a copy of a U.S. printed/authored textbook A Canadian citizen shops at a store in northern Vermont to avoid Canadian sales taxes. An American art professor spends the summer touring museums in Europe.
Describe how the following transactions would affect U.S. exports, imports, and net exports: Students in Prague...
Describe how the following transactions would affect U.S. exports, imports, and net exports: Students in Prague flock to see the latest movie from Hollywood. Mrs. Jones in Philadelphia buys a new Volvo. The student bookstore at Oxford University in England sells a copy of a U.S. printed/authored textbook A Canadian citizen shops at a store in northern Vermont to avoid Canadian sales taxes. An American art professor spends the summer touring museums in Europe.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT