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Chapter: 7 -Problem: 7 >> This question explores IS and FX equilibria in a numerical example. a. The consumption function is C = 1.5 + 0.8(Y – T). What is the marginal propensity to consume? What is the marginal propensity to save?b. The trade balance is TB = 5(1 – [1/E]) – 0.2(Y – 8). What is the marginal propensity to consume foreign goods? What is the marginal propensity to consume home goods?c. The investment function
Answer Preview: a. MPC = 0 8, MPS = 0 2. b. MPCF = 0 2, MPCH = MPC MP…

, Chapter: 1 -Problem: 4 >> The charts below show the growth of real GDP per capita in three pairs of geographically adjacent countries: North and South Korea, Argentina and Chile, Zimbabwe and Botswana (using data from the Penn World Table).a. Which country in each pair experienced faster growth in GDP per capita? Which one is now richest?b. The World Bank’s World Governance Indicators for each country in 2000 were as shown
Answer Preview: a. South Korea experienced faster growth than North Korea. Argentina …

, Chapter: 9 -Problem: 8 >> The government of the Republic of Andea is currently pegging the Andean peso to the dollar at E = 1 peso per dollar. Assume the following: In year 1 the money supply M is 2,700 pesos, reserves R are 1,500 pesos, and domestic credit B is 1,200 pesos. To finance spending, B is growing at 50% per year. Inflation is currently zero, prices are flexible, PPP holds at all times, and initially, P = 1. Ass
Answer Preview: a. See the following table. b. Reserves run out at time T = 3. Once this time is reached, the price level will grow at a rate of 50% each year because …

, Chapter: 9 -Problem: 3 >> Using the central bank balance sheet diagrams, evaluate how each of the following shocks affects a country’s ability to defend a fixed exchange rate. In the following answers, we assume the central bank keeps domestic credit unchanged whenever possible. See the following graphs. a. The central bank sells government bonds.b. Currency traders expect a depreciation in the home currency in the future.
Answer Preview: a. The central bank must allow its reserves to increase by the amount of domestic credit contraction…

, Chapter: 2 -Problem: 6 >> Suppose quotes for the dollar–euro exchange rate E$/€ are as follows: in New York $1.05 per euro, and in Tokyo $1.15 per euro. Describe how investors use arbitrage to take advantage of the difference in exchange rates. Explain how this process will affect the dollar price of the euro in New York and Tokyo.
Answer Preview: Investors will buy euros in New York at a price of $1 05 each because this is relatively cheaper …

, Chapter: 3 -Problem: 1 >> In recent years China has been routinely accused of currency manipulation. Use The Economist’s Big Mac Index to investigate these claims. Go to http://www.economist.com/content/big-mac-index to access the full dataset. Answers will depend on the data used. Here I use the January 2017 publication of the raw index. a. What is the most recent price of a Big Mac in China? What is the implied yuan/doll
Answer Preview: a. The January 2017 price is yuan 19 60, or $2 83. The exchange rate implied by this price is 3 87 y…

, Chapter: 1 -Problem: 2 >> The data in Figure 1-1(12-1) end in 2015. Visit https://research.stlouisfed.org/fred2/series/DEXCHUS and https://research.stlouisfed.org/fred2/series/DESUSEU (or another site with daily exchange rate data) and download data on the same exchange rates (yuan per dollar and dollar per euro) for the past 12 months. What are the rates today? What were they a year ago? By what percentage amount did the
Answer Preview: Solution: a. The rates are 1 14 and 0 87, respectively. b. The…

, Chapter: 2 -Problem: 2 >> Refer to the exchange rates given in the following table: Based on the table provided, answer the following questions: a. Compute the U.S. dollar–yen exchange rate E$/¥ and the U.S. dollar–Canadian dollar exchange rate E$/C$ on January 20, 2016, and January 20, 2015.b. What happened to the value of the U.S. dollar relative to the Japanese yen and Canadian dollar between January 20, 2015, and Janua
Answer Preview: a. U S. dollaryen rates: January 20, 2015: E$/ = 1/(118 48) = $0 0084/ January 20, 2016: E$/ = 1/(11…

, Chapter: 3 -Problem: 5 >> Table 3-1(14-1) in the text shows the percentage undervaluation or overvaluation in the Big Mac, based on exchange rates in January 2016. The table that follows shows the local currency price as well as the U.S. dollar price for the previous year in January 2015. Suppose purchasing power parity holds in the long run, so that these deviations would be expected to disappear. Suppose the local curren
Answer Preview: We can see from the table that during this time, PPP could be used …

, Chapter: 9 -Problem: 4 >> Consider the central bank balance sheet for the country of Riqueza. Riqueza currently has 2,000 million escudos in its money supply, 1,200 million escudos of which is backed by domestic government bonds; the rest is backed by foreign exchange reserves. Assume that Riqueza maintains a fixed exchange rate of one escudo per dollar, the foreign interest rate remains unchanged, and money demand takes t
Answer Preview: a. The central bank balance sheet follows. The backing ratio is R/M = 800/2,000 = 40%. b. Since the …

, Chapter: 5 -Problem: 10 >> This question asks you to compute valuation effects for the United States in 2015 using the same methods mentioned in the chapter. Use the bea.gov website to collect the data needed for this question: look under the “International” heading. Visit the BEA’s balance of payments data page and obtain the U.S. balance of payments for 2015 in billions of dollars. Be sure to get the correct year, and ann
Answer Preview: a. CA = $462,965 million b. FA = $195,227 million c. Net international position (2014): $7,046,149 m…

, Chapter: 1 -Problem: 3 >> Visit the Financial Times website to download data for country risk today. You may need to download the most recent daily report (pdf) for interest rates, and look for the table containing high-yield emerging market rates. Which three emerging market countries have the highest spreads on their U.S. dollar debt? Which three have the lowest?
Answer Preview: The spread also depends on the date of maturity for these bonds. …

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11 Reviews for International Macroeconomics Textbook Questions And Answers