Briefly explain how each of the following would likely affect the value of the dollar and...

Briefly explain how each of the following would likely affect the value of the dollar and the exchange rate, all else being equal. (Please answer for all 5!)

1. U.S. consumers increase their spending on imported goods.

2. The Federal Reserve reports that it is less concerned about inflation and more concerned about the impending recession in the United States.

3. The U.S. government imposes a large tariff on imported automobiles.

4. The Federal Reserve raised interest rates fearing inflationary pressures due to the booming economy.

5. Both the U.S. and the European Union agreed with the WTO to abide by the free trade agreements. (Here, assume that the U.S. and the E.U. are sole trading partners.)

Expert Solution

(1) Higher import demand by US consumers will increase the demand for foreign currency and decrease the demand for dollar. Demand curve for dollar shifts left. At the same time, supply of dollar will rise. Supply curve for dollar shifts right. Value of dollar will fall (dollar will depreciate) and exchange rate will fall, as the net effect.

(2) Fed's concern about recession will decrease import demand by US consumers, which will decrease the demand for foreign currency, and decrease the supply of dollar. Supply curve for dollar shifts left. Value of dollar will rise (dollar will appreciate) and exchange rate will rise.

(3) Higher tariff on imported cars will increase US domestic price of imported cars, decreasing demand for imported cars. This will decrease the demand for foreign currency, and decrease the supply of dollar. Supply curve for dollar shifts left. Value of dollar will rise (dollar will appreciate) and exchange rate will rise.

(4) Higher US interest rate will increase foreign investment in US, increasing demand for dollars and shifting dollar demand curve rightward. Value of dollar will rise (dollar will appreciate) and exchange rate will rise.

(5) US FTA with EU will increase both US exports to EU, and US imports from EU. The net effect on US net exports is uncertain. If US exports more than it imports, demand for dollar will rise, shifting dollar demand curve rightward, which will increase the value of dollar (appreciating dollar) and increasing exchange rate. If US imports more than it exports, demand for dollar will fall, shifting dollar demand curve leftward, which will decrease the value of dollar (depreciating dollar) and decreasing exchange rate.

Rahul Sunny answered 1 year ago

How would each of the following scenarios likely affect (that is, exacerbate (that is, make a...

How would each of the following scenarios likely affect (that is, exacerbate (that is, make a bad situation worse) or mitigate (that is, make it less painful or severe) the occurrence of a financial crisis (explain briefly): Fearing potential contagious effects, the IMF suggests that it stands ready to bailout a country which may face a financial crisis. b. The threat of an eventual intervention by the IMF demanding that the country that is about to face a financial crisis...

How would each of the following developments affect the exchange rate of the US dollar (state...

How would each of the following developments affect the exchange rate of the US dollar (state whether the US dollar will get stronger or weaker)? Support your answer discussing the effects on the demand and supply of a foreign currency or dollars and using appropriate diagrams. a. Increase in the expected inflation rate in the economies of US trading partners b. Increase in the expected future exchange rate (US $ is expected to grow stronger) c. Americans are traveling less...

Explain briefly how each of the following transactions would affect a company’s balance sheet. Remember, assets...

Explain briefly how each of the following transactions would affect a company’s balance sheet. Remember, assets must equal liabilities plus owners’ equity before and after the transaction. a) Sale of used equipment with a book value of $300,000 for $500,000 cash. b) Purchase of a new $80 million building, financed 40 percent with cash and 60 percent with a bank loan. c) Purchase of a new building for $60 million cash. d) A $40,000 payment to trade creditors. e) A...

(20%) Explain and graphically illustrate how each of the following are likely to affect the natural...

(20%) Explain and graphically illustrate how each of the following are likely to affect the natural rate of unemployment (NAIRU) and the real wage: a. A new law banning people from seeking employment before age 18. b. Tight counter-inflationary monetary policy creates a recession. c. The government gives tax brakes to businesses that curb price increases.

How would each of the following factors be likely to affect the economy-wide supply of labor?...

How would each of the following factors be likely to affect the economy-wide supply of labor? Show your answers graphically and briefly explain. A.The relaxation of immigration law that causes an influx of immigrants into the U.S. B.The age at which people are eligible for Medicare is decreased. C.Social Security benefits are made less generous. D.War preparations lead to the institution of a national draft, and many young people are called up. E.More people decided to have children (consider...

Explain how the development of the internet is likely to affect the development of global value...

Explain how the development of the internet is likely to affect the development of global value chains?

How do you think an appreciation of the Australian dollar is likely to affect the tourism...

How do you think an appreciation of the Australian dollar is likely to affect the tourism and hospitality industry in the following situations? a) before COVID b) under severe COVID-19 conditions.

Q3 Explain how each of the following would affect theprobability that a job searcher will...

Q3 Explain how each of the following would affect the probability that a job searcher will accept the next wage offer and thus affect the expected length of his or her unemployment: (a) a decline in the rate of inflation below the expected one and (b) a decrease in unemployment benefits.Q4 How do you explain the existence of internal labor markets? What are their advantages to employers? To workers?

1. Explain and show (separately) on a graph how each of the following would affect the...

1. Explain and show (separately) on a graph how each of the following would affect the demand for calculators: a. Cell phones now have a calculator function included b. Every course begins to require use of a calculator c. The price for a calculator falls from $20 to $7 d. Consumers’ incomes increase, and calculators are a normal good

Explain how each of the following events would affect the national budget deficit, as it is...

Explain how each of the following events would affect the national budget deficit, as it is measured by government. Also make sure that you distinguish between one-time effects and permanent effects if appropriate. If the government decides to sell the botanical garden to a private investor who will build a major tourist attraction in the area. | The parliament approves $300 million for the construction of a monorail between the Suva and Nausori corridor. The government expects to save $10...

Question