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impact of exchange rate on exports

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1. Assume that a country's real growth is 2 percent per year, while its real deficit is rising 5 percent a year. Can the country continue to afford such deficit indefinitely? What problems might it face in the future?

2.The Fed wants to increase the money supply (which is currently 4000) by 200. The money multiplier is 3. For each 1 percentage point the discount rate falls, banks borrow an additional 20. Explain how the Fed can achieve its goals using the following tools: (in actual numbers)
a. Change the reserve requirement
b. Change the discount rate
c. Us Open market operations

3. One type of toy bears is in China and exported to the US. A toy bear sells for 16 Yen in China. The exchange rate of Chinese yen and US dollars is \$1 = 8 Yen.

a. what will be the price of this toy bear in US dollars?
b. Suppose the US demand for this toy bear is D = 100- 10*P. P is the price in US dollar, what is the quantity of US demand for this toy bear?
c. If the Chinese yen is depreciated by 20%. This means Chinese yen is worth 80% of its previous value compared to US dollar. What will be the US quantity of demand for this toy bear?

d. What conclusion you can make on the impact of exchange rate on exports?

Solution Summary

The impact of exchange rate on exports is presented.

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