The dollar has been steadily depreciating in value relative to other major global currencies, including the...

The dollar has been steadily depreciating in value relative to other major global currencies, including the Japanese Yen, over the past six months.

a) How would this impact the competitiveness of US automotive firm General Motors competing with Japanese automotive firm Toyota in global markets?

b) How would the Bank of Japan implementing expansionary monetary policy impact the competitiveness of Toyota? How do you know?

c) Suppose the US government wants to, at a minimum, maintain its market share in the domestic automobile market, so they implement tariffs on cars imported from Japan. Illustrate and describe how such a policy will redistribute welfare within the US. Who gains and who loses? How does this trade policy impact the volume of trade?

Expert Solution

The dollar has been steadily depreciating its value relative to other major currencies including Japanese Yen a.Depreciation positively impact the competitiveness of US automotive firm General Motors that is competing with Japanese automotive firm Toyota in global market . Depreciation of dollar against Japanese Yen results goods produced by US automotive firms General Motors becomes cheaper in global market relative to Japan automotive firm. It leading to switching of expenditure from Japan firm to US automotive firm. So depreciation of dollar increases the competitiveness of U.S. firm b. Exapansionary monetary policy will increase money supply of Japan. Then supply of Yen will higher than its demand . It will depreciate the Yen in terms of foreign currencies . It makes goods( cars ) produced by Toyota will be cheaper to other foreign nation. It will increase the export of Toyota cars. There it increase the competitiveness of Japan automotive firm Toyota c. U.S government implements tariffs on cars imported from Japan. Then price of Japan cars rises to OP1 from OP. As a result of imposition of tariff , consumer surplus will decline by reducing consumption from OQ3 to OQ2. It will increase the revenue of government by MNab. When imports are restricted with tariff , producer surplus will increase. It is domestic producer who gain due to tariff because of increasing production from OQ to OQ1 It will reduce the volume of trade as result of imposition of tariff on Japan cars. It will redistribute the wealth from consumer to producer

Rahul Sunny answered 2 years ago

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The dollar has been steadily depreciating in value relative to other major global currencies, including the...

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