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Explain how permanent shifts in national real money demand functions affect real and nominal exchange rates in the long run.
Explain how you would figure out the dollar/pound exchange rate implied by PPP. When might it be a bad idea to use the PPP theory in this way?
Other things equal, how would you expect the following shifts to affect a currency's real exchange rate against foreign currencies?
Discuss why it is often asserted that exporters suffer when their home currencies appreciate in real terms against foreign currencies.
According to relative PPP, what should happen over the year to the Swiss franc's exchange rate against the Russian ruble?
How might a zero interest rate complicate the task of monetary policy? Hint: At a zero rate of interest, there is no advantage in switching from money to bonds.
Why do governments typically institute currency reforms in connection with broader programs aimed at halting runaway inflation?
Does our discussion of money's usefulness as a medium of exchange? Why some currencies become vehicle currencies for foreign exchange transactions?
What is the short-run effect on the exchange rate of an increase in domestic real GNP, given expectations about future exchange rates?
The velocity of money, V, is defined as the ratio of real GNP to real money holdings. What is the relationship between velocity and the exchange rate?
How would you expect a fall in a country's population to alter its aggregate money demand function?
If the dollar depreciates, what would you expect to happen to outsourcing by American companies? Explain and provide an example.
Do you think that, immediately after the euro's introduction, the value of foreign exchange trading in euros was greater or less than the euro value.
What is the difference between the interest rate on one-year dollar deposits and that on one-year euro deposits (assuming no repayment risk)?
Imagine that everyone in the world pays a tax of percent on interest earnings. How would such a tax alter the analysis of the interest parity condition?
Does our analysis of the foreign exchange market suggest any connection between these two events?
Do you have any guesses about how the liquidity of euro deposits may be changing over time?
Determine the effect on the current dollar/euro exchange rate, assuming current interest rates on dollar and euro deposits do not change.
If the U.S. interest rate also remains constant, what is the new equilibrium $/£ exchange rate?
What would be the real rates of return on the assets in the preceding question if the price changes described were accompanied by a simultaneous.
Petroleum is sold in a world market and tends to be priced in U.S. dollars. How are its profits affected when the yen depreciates against the dollar?
A U.S. dollar costs 7.5 Norwegian kroner, but the same dollar can be purchased for 1.25 Swiss francs. What is the Norwegian krone/Swiss franc exchange rate?
What is the price of a bratwurst in terms of a hot dog? All else equal, how does this relative price change if the dollar depreciates to $1.25per euro?
How would economic statisticians have to modify the national income identity (13-1) if they wish to include such gains and losses as part of the definition.
Return to the example in this chapter's final Case Study of how a 10 percent dollar depreciation affects U.S. net foreign wealth.