Question 1

Figure 13.1. U.S. market for Imported Toyotas -In Figure 13.1, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the U.S.market.A shift in the marginal cost curve from MC₀ to MC₁ leads to

Accepted Answer

The answer of Figure 13.1. U.S. market for Imported Toyotas...

Question 2

Figure 13.1. U.S. market for Imported Toyotas -In Figure 13.1, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.A shift in the marginal cost curve from MC₀ to MC₁ represents

Accepted Answer

The answer of Figure 13.1. U.S. market for Imported Toyotas...

Question 3

When manufacturing computer software, suppose that Microsoft Inc.uses labor and materials whose costs are denominated in dollars and Swiss francs respectively.If the dollar's exchange value depreciates 10 percent against the Swiss franc, the Swiss franc-denominated cost of the firm's software falls by 10 percent.

Accepted Answer

The depreciation of the dollar would increase the cost of materials denominated in Swiss francs for Microsoft, not decrease it.

Question 4

By decreasing the relative production costs of U.S.companies, a dollar appreciation tends to lower U.S.export prices in foreign-currency terms, which induces an increase in the amount of U.S.goods exported abroad.

Accepted Answer

A dollar appreciation makes U.S. goods more expensive in foreign markets, which tends to reduce the amount of U.S. goods exported abroad as they become less competitive compared to locally produced or other foreign goods.

Question 5

The absorption approach to currency depreciation focuses on

Accepted Answer

The absorption approach to currency depreciation emphasizes income effects, particularly how a depreciation affects a country's trade balance by influencing the level of national income and expenditure.

Question 6

According to the absorption approach, currency devaluation best improves a country's trade balance when its economy is at maximum capacity.

Accepted Answer

The absorption approach suggests that currency devaluation improves a country's trade balance when it reduces domestic absorption (i.e., domestic consumption, investment, and government spending) relative to production, not necessarily when the economy is at maximum capacity.

Question 7

When producing jetliners, suppose that Boeing employs labor and materials whose costs are denominated in dollars and Chinese yuan respectively.If the dollar's exchange value depreciates 20 percent against the yuan, the yuan-denominated cost of a Boeing jetliner falls by an amount less than 20 percent.

Accepted Answer

A depreciation in the value of the dollar means that it takes more dollars to buy the same amount of yuan. This implies that the cost of materials denominated in yuan becomes more expensive in dollar terms. Therefore, the yuan-denominated cost of a Boeing jetliner falls by an amount less than 20 percent due to the increase in the cost of materials.

Question 8

Figure 13.2. The U.S. Market for Imported Toyotas -In Figure 13.2, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.A shift in the marginal cost curve from MC₀ to MC₂ represents

Accepted Answer

A shift in the marginal cost curve from MC₀ to MC₂ indicates an increase in the cost of producing Toyotas, which could be caused by a depreciation of the dollar relative to the yen, making imported components or the cost of production in Japan more expensive in dollar terms.

Question 9

As yen-denominated costs become a larger portion of Ford's total costs, a dollar appreciation results in a smaller increase in the yen-denominated cost of a Ford auto than occurs when all input costs are dollar denominated.

Accepted Answer

This is because when yen-denominated costs become a larger portion of Ford's total costs, it means that a smaller portion of Ford's costs are denominated in dollars, thus the dollar appreciation has a smaller impact on the yen-denominated cost of a Ford auto.

Question 10

When manufacturing automobiles, suppose that General Motors uses labor and materials whose costs are denominated in dollars and pounds respectively.If the dollar's exchange value appreciates by 15 percent against the pound, the pound-denominated cost of a GM vehicle rises by 15 percent.

Accepted Answer

This statement refers to General Motors, but the graph and information in Figure 13.2 pertains to the U.S. market for imported Toyotas. Therefore, the answer cannot be determined from the given information.

Question 11

If a currency's exchange rate is overvalued, a government would likely initiate actions to revalue the currency.

Accepted Answer

An overvalued currency means it is stronger than perhaps it should be, making imports cheaper and exports more expensive. Governments might intervene to devalue rather than revalue the currency to correct this imbalance and improve competitiveness.

Question 12

A depreciation of the dollar results in Whirlpool dishwashers becoming less competitive in Europe.

Accepted Answer

A depreciation of the dollar makes U.S. goods cheaper for foreign buyers, thus Whirlpool dishwashers would become more competitive in Europe, not less.

Question 13

The purpose of currency devaluation is to cause a depreciation in a currency's exchange value.

Accepted Answer

Currency devaluation is a deliberate government policy that aims to reduce the value of a currency in relation to other currencies. This is done to make exports cheaper and more competitive, which can boost a country's economy. A lower exchange rate makes a country's exports relatively less expensive and increases its competitiveness in global markets.

Question 14

Currency devaluation is initiated by governmental policy rather than the free-market forces of supply and demand.

Accepted Answer

Currency devaluation is a deliberate action taken by governments to decrease the value of their currency relative to another currency. It is not a result of market forces alone.

Question 15

If a currency's exchange rate is undervalued, a government would likely initiate actions to devalue the currency.

Accepted Answer

If a currency's exchange rate is undervalued, a government would actually initiate actions to strengthen the currency, not devalue it further. This would make exports more expensive, but imports cheaper and more competitive, which could help increase domestic production and reduce the trade deficit.

Question 16

Figure 13.2. The U.S. Market for Imported Toyotas -In Figure 13.2, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the U.S.market.A shift in the marginal cost curve from MC₀ to MC₂ leads to

Accepted Answer

The shift in the marginal cost curve would lead to a change in the price that Toyota charges for its cars in the U.S. market. However, the degree of pass-through (the extent to which the change in Toyota's costs is reflected in the price charged to consumers) depends on the elasticity of demand for Toyotas. If demand is relatively elastic, meaning consumers are very sensitive to changes in price, then Toyota will have to absorb some of the higher costs and not fully pass them on to consumers. This would result in a partial pass-through of the depreciation of the dollar.

Question 17

Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production of automobiles.If the dollar's exchange value depreciates by 10 percent against the yen, the yen-denominated cost of a GM vehicle rises by 10 percent.

Accepted Answer

A weaker dollar means it takes more dollars to buy the same amount of yen, so GM's costs in yen will increase. This will translate into a higher cost of production for GM vehicles, leading to a price increase for consumers.

Question 18

Appreciation of the dollar's exchange value worsens the international competitiveness of Boeing Inc., whereas a dollar depreciation improves its international competitiveness.

Accepted Answer

Appreciation of the dollar makes Boeing's exports more expensive in foreign markets, worsening its international competitiveness. A depreciation of the dollar makes Boeing's exports less expensive in foreign markets, improving its international competitiveness.

Question 19

The purpose of currency revaluation is to cause an appreciation in a currency's exchange value.

Accepted Answer

Currency revaluation aims to increase the value of a currency and cause appreciation in its exchange value relative to other currencies.

Question 20

Assume that General Motors employs labor and materials, whose costs are denominated in dollars, in the production of automobiles.If the dollar's exchange value appreciates by 10 percent against the yen, the yen-denominated cost of a GM vehicle falls by 10 percent.

Accepted Answer

When the dollar appreciates against the yen, it means that each dollar can be exchanged for more yen. Therefore, the yen-denominated cost of a GM vehicle, which is originally priced in dollars, will decrease by the same percentage as the appreciation, assuming no other changes in pricing or costs.

Quiz 13: Mechanisms of International Adjustment

Figure 13.1. U.S. market for Imported Toyotas -In Figure 13.1, D represents the U.S.demand curve for Toyotas and MC0 represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the U.S.market.A shift in the marginal cost curve from MC0 to MC1 leads to

Figure 13.1. U.S. market for Imported Toyotas -In Figure 13.1, D represents the U.S.demand curve for Toyotas and MC0 represents the marginal cost of producing Toyotas.A shift in the marginal cost curve from MC0 to MC1 represents