Assume the United States exports 1,000 computers at a price of $3,000 each and imports 150 UK
Question:
Assume the United States exports 1,000 computers at a price of $3,000 each and imports 150 UK autos at a price of £10,000 each. Assume that the dollar/pound exchange rate is $2 per pound.
a. Calculate, in dollar terms, the U.S. export receipts, import payments, and trade balance prior to a depreciation of the dollar’s exchange value.
b. Suppose the dollar’s exchange value depreciates by 10 percent. Assuming that the price elasticity of demand for U.S. exports equals 3.0 and the price elasticity of demand for U.S. imports equals 2.0, does the dollar depreciation improve or worsen the U.S. trade balance? Why?
c. Now assume that the price elasticity of demand for U.S. exports equals 0.3 and the price elasticity of demand for U.S. imports equals 0.2. Does this change the outcome? Why?
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
a Export quantity 1000 Export price 3000 Export receipts 3 million Import quantity 150 Import p...View the full answer
