Solve clearly 1. Modeling the Nominal Exchange Rate Consider the forex market for the US Dollar against the Yen, as shown in the diagram below. a) As we move up

Solve clearly 1. Modeling the Nominal Exchange Rate
Consider the forex market for the US Dollar against the Yen, as shown in the diagram below.
a) As we move up the vertical axis and get
Yen per
Dollar
Supply of
more Yen for each Dollar, has the Dollar
Dollars
appreciated or depreciated?
b) On this diagram, how would you show
the impact of higher income growth in the
US? How will higher growth in income and
110
wages for the US, relative to Japan, affect US
purchases of imports from Japan and the
current account? Using the diagram, indicate
the expected result for the forex market and
Demand for
the nominal exchange rate.
Dollars
c) will this change in the nominal
exchange rate (assuming that prices in Japan
Quantity of Dollars
and the US do not change) do to US demand
for imports from Japan in the future?

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