The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely
Question:
The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely to the rise in the U.S. budget deficit. On the other hand, the popular press sometimes claims that the increased trade deficit resulted from a decline in the quality of U.S. products relative to foreign products.
a. Assume that U.S. products did decline in relative quality during the 1980s. How did this affect net exports at any given exchange rate?
b. Draw a three-panel diagram to show the effect of this shift in net exports on the U.S. real exchange rate and trade balance.
c. Is the claim in the popular press consistent with the model in this chapter? Does a decline in the quality of U.S. products have any effect on our standard of living?
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
a A decline in the quality of US goods at a given real exchange rate would reduce net exports ...View the full answer
