UNIT 6 Macroeconomics - jslon.com

1 advanced placement Economics Teacher Resource Manual National Council on economic Education,NewYork, 4 ACTIVITY 54 AnswerKeyUNITHow Monetary and Fiscal Policies Affect Exchange RatesChanges in a nation s monetary and fiscal policies affect its exchange rates and its balance oftradethrough the interest rate,income and the price in the value ofa country s currency mayaffect the balance oftrade and ag gregate value ofreal output and price levels may also policies influence currency values,and currency values influence domestic complexity ofthe connection leads to careful evaluation ofany change in domestic policy makers cannot ignore the international effects ofchanges in monetary and fiscal series ofsituations is presented each case: Evaluate the expected effects on exchange rates in the United States and the other currency graphs provided to reflect changes in the currency values.

2 Analyze the impact ofthe currency changes on the as it applies to net exports,balance oftrade,aggregate demand and p rice out the situations in the short initiates a personal income tax reduction plan,leaving every tax-payingAmerican with more disposable income.(A)What will happen as a result to trade between the United States and Taiwan?Americans will buy more Taiwanese and domestic DOLLAREXCHANGE RATES1 SDQUANTITY OFTAIWAN DOLLAREXCHANGE RATED1SD666 advanced placement Economics Teacher Resource Manual National Council on economic Education,NewYork, 4 ACTIVITY 54 AnswerKeyUNIT(B)In GraphA,what happens to the It depreciates.

3 (C)In Graph B,what happens to the Taiwanese dollar? It appreciates.(D)As a result ofthe fiscal policy,(i) demand shifts (left/right).(ii)Price levels in the United States (rise/ fall).(iii) (increase/ decrease).Explain increase in disposable incomeincreases the demand for all goods,including foreign ,the increase makes foreign goods relatively less expensive.(iv) (increase / decrease).Explain relative price to foreigners has increased,so foreigners buy s fiscal policies lead to an increase in Japan s real GDP.(A)What will happen as a result to trade between the United States and Japan?

4 Japan buys more because Japanese incomes rise.(B)In GraphA,what happens to the It appreciates.(C)In Graph B,what happens to the Japanese yen? It 'sRealGDPI ncreasesQUANTITY DOLLAREXCHANGE RATES1 SDQUANTITY OFJAPANESE DOLLAR/ YENEXCHANGE RATED1 SDGraphAGraphBAdvanced placement Economics Teacher Resource Manual National Council on economic Education,NewYork, 4 ACTIVITY 54 AnswerKeyUNIT(D)As a result ofthe changing value ofthe ,(i) (increase /decrease).Explain takes more yen to buy each dollar; there-fore cost more in yen than previously,and exports to Japan decrease.

5 (ii) (increase/ decrease).Explain do llar buys more yen; thereforeJapanese goods are cheaper in ,and imports from Japan increase.(iii) demand shifts (left/right).(iv)Price levels in the United States(rise / fall). budget deficit increases,which causes increases in the interest rate.(Assume tradewith Great Britain.)(A)What will happen as a result to trade between the United States and Great Britain?British investors will want to buy (B)In GraphA,what happens to the It appreciates.(C)In Graph B,what happens to the British pound? It DOLLARSBRITISH DOLLAREXCHANGE RATES1 SDQUANTITY OFBRITISH DOLLAR/BRITISH POUNDEXCHANGE RATED1 SDGraphAGraphB668 advanced placement Economics Teacher Resource Manual National Council on economic Education,NewYork, 4 ACTIVITY 54 AnswerKeyUNIT(D)As a result ofthe changing value ofthe :(i) (increase /decrease).

6 E xplain takes more pounds to buy each dollar;therefore cost more in pounds than previously,and exports to Great Britaindecrease.(ii) (increase/decrease).E xplain dollar buys more pounds; thereforeBritish goods are cheaper in ,and imports from Great Britain increase.(iii) demand shifts (left/ right).(iv)Price levels in the United States(rise / fall). s interest rates are increasing,while the rate remains relatively constant.(A)What will happen as a result to trade between the United States and Europe?Europeans willsell to buy European bonds.(B)In GraphA,what happens to the It depreciates.

7 (C)In Graph B,what happens to the European e uro? It DOLLAREXCHANGE RATES1 SDQUANTITYOF DOLLAR/EUROEXCHANGE RATED1 SDGraphAGraphBAdvanced placement Economics Teacher Resource Manual National Council on economic Education,NewYork, 4 ACTIVITY 54 AnswerKeyUNIT(D)As a result ofthe changing value ofthe ,(i) (increase/ decrease).Explain takes more dollars to buy each euro;therefore cost less in euros than previously,and exports to Europe increase.(ii) (increase / decrease).Explain dollar buys fewer euros; thereforeEuropean goods are more expensive in dollars,and imports from Europe decrease.

8 (iii) demand shifts (left / right).(iv)Price levels in the United States(rise/ fall). is a rapid increase in the Canadian price level while the level remains relativelyconstant.(A)What will happen as a result to trade between the United States and Canada?Canadians willwant to buy (B)In GraphA,what happens to the It appreciates.(C)In Graph B,what happens to the Canadian dollar? It creasesQUANTITY DOLLAREXCHANGE RATES1 SDQUANTITY OFCANADIAN DOLLAREXCHANGE RATED1 SDGraphAGraphB670 advanced placement Economics Teacher Resource Manual National Council on economic Education,NewYork, 4 ACTIVITY 54 AnswerKeyUNIT(D)As a result ofthe changing value ofthe :(i) (increase / decrease).

9 E xplain takes more Canadian dollars to buyeach ; therefore cost more in Canadian dollars than exports to Canada decrease.(ii) (increase/ decrease).Explain buys more Canadiandollars; therefore Canadian goods are cheaper in imports fromCanada increase.(iii) demand shifts (left/right).(iv)Price levels in the (rise / fall).