Author Question: What can you learn from the figure below (Figure 13-1 from the text) which depicts the U.S. GNP and ... (Read 105 times)

luminitza · **on:** Jun 30, 2018

What can you learn from the figure below (Figure 13-1 from the text) which depicts the U.S. GNP and its components for the year 2009?

What will be an ideal response?

Question 2

Discuss the effects of a rise in the dollar interest rate on the exchange rate.

What will be an ideal response?

tkempin · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The highest component of GNP is consumption and the U.S. has a negative current balance.

Answer to Question 2

There are two effects to consider. A rise in the interest rate offered by dollar deposits combined with a constant expected exchange rate will cause the dollar to appreciate (see Figure 14-5 from the text). However, the expected exchange rate will likely change. As Figure 14-6 from the text shows, if the expected exchange rate increases, the dollar will depreciate.

Figure 14-5

Figure 14-6