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Author Question: What can you learn from the figure below (Figure 13-1 from the text) which depicts the U.S. GNP and ... (Read 219 times)

luminitza

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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?


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tkempin

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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


luminitza

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Reply 2 on: Jun 30, 2018
YES! Correct, THANKS for helping me on my review

frankwu0507

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Reply 3 on: Yesterday
Excellent

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