Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the United Kingdom. (Note: Throughout this analysis, assume that only the United States and the United Kingdom are relevant countries.) The United States' demand elasticity for imports The United Kingdom's demand elasticity for exports from the United States Given that the sum of these elasticities of demand is less than will worsen the U.S. trade position. Elasticity 0.2 0.3 1.0, the elasticity approach predicts that the depreciation of the U.S. dollar Use the elasticity approach for the remainder of this problem to confirm or refute its prediction about the U.S. trade position as a result of the dollar depreciation. Assume the prices of imports remain constant in terms of foreign currencies. This means the 6% depreciation of the dollar results in a 6% increase in the price of imported goods to the United States, but the dollar price of exports remains constant.

Suppose the U.S. dollar depreciates by 6% against the U.K. pound. The following table shows the elasticities of demand in the United States and the United Kingdom. (Note: Throughout this analysis, assume that only the United States and the United Kingdom are relevant countries.) The United States' demand elasticity for imports The United Kingdom's demand elasticity for exports from the United States Given that the sum of these elasticities of demand is less than will worsen the U.S. trade position. Elasticity 0.2 0.3 1.0, the elasticity approach predicts that the depreciation of the U.S. dollar Use the elasticity approach for the remainder of this problem to confirm or refute its prediction about the U.S. trade position as a result of the dollar depreciation. Assume the prices of imports remain constant in terms of foreign currencies. This means the 6% depreciation of the dollar results in a 6% increase in the price of imported goods to the United States, but the dollar price of exports remains constant.

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: A Macroeconomic Theory Of The Open Economy

Section: Chapter Questions

Problem 6QCMC

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