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Chapter 4 ESS

The document outlines various economic scenarios and their effects on exchange rates, including changes in domestic interest rates, foreign income, and money supply. It also discusses the impact of domestic money supply increases, relative demand for domestic products, and tariffs on imports. Additionally, it poses a question regarding the expected real exchange rate between the Thai baht and Yen based on differing interest rates.

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3 views2 pages

Chapter 4 ESS

The document outlines various economic scenarios and their effects on exchange rates, including changes in domestic interest rates, foreign income, and money supply. It also discusses the impact of domestic money supply increases, relative demand for domestic products, and tariffs on imports. Additionally, it poses a question regarding the expected real exchange rate between the Thai baht and Yen based on differing interest rates.

Uploaded by

Willy Marvelous
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1.

1
Fill in the following table, assuming the law of one price prevails.

2. Using the flexible price monetary model (monetary approach), discuss how the exchange rate be affected if
there is:
a. An increase in the domestic interest rate
b. An increase in foreign income
c. An increase in the foreign money supply

3. Describe the chain of events leading to exchange rate determination for the following
cases:
(a) An increase in domestic money supply
(b) Increase in world relative demand for domestic products
(c) Increase in relative domestic output supply

4. Discuss how the nominal and real exchange rates are effected by a tariff on imports
from abroad.

5. Suppose the expected annual real interest rates are 6% and 3% in Japan and
Thailand respectively. What do you expect the real exchange rate between Thai baht
and Yen over the next year?

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