Chapter 1. Chapter 16a (27a)

Step 1

My Slide Activities

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You must read each slide, and complete any questions on the slide, in sequence.

Question

Suppose that 1 U.S. dollar is worth 0.5853 British pounds.

How many dollars is one pound worth? Round the answer to 4 decimal places. $tHZ6X2dbmZXs3VJz

The dollars-per-pound exchange rate is simply the reciprocal of the pounds-per-dollar rate. In this case, 1 British pound = 1/0.5853 = $1.7085.

Step 2

Question

If one dollar is worth 0.7391 euros, and 0.5853 pounds, how many euros is one pound worth? Round the answer to 4 decimal places. qBGuWHxyibFdudDe€

Since one dollar = 0.5853 pounds = 0.7391 euros, divide both sides by 0.5853. 1 pound = (0.7391 / 0.5853) euros.

Step 3

Question

Suppose that the dollar goes from being worth 0.5853 British pounds to being worth 0.6103 pounds. In this case, the dollar has oS6TKm32Y/8YRRAS/HoJKNTI9znIYnOmTXxxeU7Bc/YWv+I148qJSg== and the pound has 971jBO8LXmeXGliRKMvKXZlFkjrTcdcuHXxOnKXjpO7yUXF3s3uTfg==.

The value of the dollar has gone up, since one dollar is worth more pounds. At the same time, the reciprocal must decrease, and it takes more pounds to buy one dollar, so the pound has depreciated.

Step 4

Question

Suppose that the dollar goes from being worth 0.5853 British pounds to being worth 0.6103 pounds

By what percentage has the dollar appreciated? Write as a percentage, rounding the answer to two decimal places. jkRnNuZBJCM=%

The appreciation is calculated as the percentage change in the dollar’s value, or 100% x (E2 - E1) / E1). Here, percentage appreciation = 100% x (0.6103 - 0.5853)/0.5853.

Step 5

Question

If the dollar appreciates, we expect the U.S. current account to have a growing V+8qQesU++4YrvMzILlDrnawcKg= and the U.S. capital (financial) account to have a growing aXdIaILJtMmKT/Op+a+ubog+nZg=.

An appreciating currency decreases a country’s exports and increases imports, all else equal. As a result, the current account (CA) balance (X – M) decreases and goes into deficit. Since the capital (financial account) is equal to (– CA), capital account surpluses must offset current account deficits.