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Chapter 18: Q1CU (page 638)

Question: Look at the data in Figure 18-8. Where do you see devaluations and revaluations of the franc against the mark?

Short Answer

Expert verified

Yes, devaluations and revaluations were seen between 1971 to 1995.

Step by step solution

01

Explanation

Revaluation of the currency means an increase in the currency's value in the view of foreign currency. Devaluation of the currency means a decrease in the currency's value in the view of foreign currency. The devaluation and revaluation are required when the exchange rate changes suddenly—like 1974, 1976, 1981, 1986, 1993, and 1994.

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Most popular questions from this chapter

Question: Why would Abenomics lead to a weaker yen?

What effect do you think the collapse of the U.S. housing bubble in 2008, and the ensuing Great Recession, had on international capital flows into the United States?

Mexico discovers huge reserves of oil and starts exporting oil to the United States. Describe how this would affect the following.

  1. The nominal peso–U.S. dollar exchange rate
  2. Mexican exports to the United States of other goods and services
  3. Mexican imports from the United States of goods and services

Draw a diagram, similar to Figure 18-7, representing the foreign exchange situation of China when it kept the exchange rate fixed. Express the exchange rate as U.S. dollars per yuan. Then show with a diagram how each of the following policy changes will eliminate the disequilibrium in the market.

  1. China no longer fixes its exchange rate and allows it to float freely.
  2. Placing restrictions on foreigners who want to invest in China
  3. Removing restrictions on Chinese who want to invest abroad
  4. Imposing taxes on Chinese exports, such as shipments of clothing, that are causing a political backlash in the importing countries

A basket of goods and services costs \(100 in the United States costs 800 pesos in Mexico, and the current nominal exchange rate is 10 pesos per U.S. dollar. Over the next five years, the cost of that market basket rises to \)120 in the United States and 1,200 pesos in Mexico, although the nominal exchange rate remains at 10 pesos per U.S. dollar. Calculate the following.

a. The real exchange rate now and five years from now, if ' 'today's price index in both countries is 100

b. Purchasing power parity today and five years from now
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