Question
As shown in the table below, the price elasticity of demand for U.S. imports is 0.22 and the price elasticity of demand for U.S. exports
As shown in the table below, the price elasticity of demand for U.S. imports is 0.22 and the price elasticity of demand for U.S. exports is 0.11. What is the net effect on U.S. payments and receipts when the dollar depreciates by 10%? Does the trade balance improve or worsen?
Impact on U.S. Payments, Receipts, and The Trade Balance When the Dollar Depreciates By 10 % |
Sector | Elasticity | Price Change in $ | Quantity Change | Net Effect ($) |
Import | 0.22 | ? | ? | ? |
Export | 0.11 | ? | ? | ? |
a. | Payments rise by 12%, receipts fall by 11%, trade balance worsens | |
b. | Payments fall by 7.8%, receipts fall by 1.1%, trade balance improves | |
c. | Payments rise by 7.8%, receipts rise by 1.1%, trade balance worsens | |
d. | Payments fall by 12%, receipts rise by 11%, trade balance improves | |
e. | Payments fall by 12%, receipts rise by 1.1%, trade balance improves |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started