The Micro Economy Today 14th Edition Bradley Schiller, Karen Gebhardt - Solutions

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7. (a) Which low-income nation in Table 23.3 has a GDP growth rate closest to that of the United States?(b) How much faster is that nation’s population growth? %(c) How much lower is its per capita GDP growth? %
5. If the industrialized nations were to satisfy the UN’s Millennium Aid Goal, how much more foreign aid would they give annually? (See Table 23.2.) $
3. In Namibia,(a) What percentage of total output is received by the richest 10 percent of households?(See World View, p. 493.) %(b) How much output did this share amount to in 2014, when Namibia’s GDP was $14 billion? $(c) With a total population of 2 million, what was the implied per capita
1. The World Bank’s threshold for “extreme” poverty is $1.25 per person per day.(a) How much annual income does this imply for a family of four? $(b) What portion of the official U.S. poverty threshold (roughly $29,000 for a family of four) is met by the World Bank’s measure? %
13. What market failure does Bill Gates (World View, p. 495)cite as the motivation for global philanthropy? LO23-3 mobile
12. If economic growth reduced poverty but widened inequalities, would it still be desirable? LO23-3
11. How do nations expect nationalization of basic industries to foster economic growth? LO23-3
10. Why do economists put so much emphasis on entrepreneurship?How can poor nations encourage it? LO23-3
9. Would you invest in Cambodia or Kenya on the basis of the information in Figure 23.5? LO23-3
8. Can poor nations develop without substantial increases in agricultural productivity? (See Figure 23.2.) How?LO23-3
7. How does microfinance alter prospects for economic growth? The distribution of political power? LO23-3
3. If a poor nation must choose between building an airport, some schools, or a steel plant, which one should it choose? Why? LO23-3
2. If you had only $14 to spend per day (the U.S. poverty threshold), how would you spend it? What if you had only$2 a day (the World Bank “severe poverty” threshold)?LO23-1
Global poverty thresholds are about one-tenth of U.S.standards. “Extreme” poverty is defined as less than $1.25 per day per person; “severe” poverty is less than $2 per day (inflation adjusted). LO23-1
About 15 percent of the U.S. population (more than 40 million people) are officially counted as poor. Poor people in America suffer from relative deprivation, not absolute deprivation, as in global poverty. LO23-1
Definitions of “poverty” are culturally based. Poverty in the United States is defined largely in relative terms, whereas global poverty is tied more to absolute levels of subsistence. LO23-1
Developing infrastructure that facilitates business activity.
Developing and enforcing legal safeguards for property, income, and wealth.
Spreading private ownership.
Reducing bureaucratic barriers to free enterprise.
Many of the 10 million child deaths that occurred last year were linked to unsafe water and lack of sanitation. Children can’t fight off infections if their bodies are weakened by waterborne diseases.
At least 2 million people, most of them children, die annually from waterborne diseases such as diarrhea, cholera, dysentery, typhoid, guinea worm, and hepatitis, as well as such illnesses as malaria and West Nile virus carried by mosquitoes that breed in stagnant water.
May be beaten if they fail to obey their husbands
Are often expected to bring a financial dowry to the marriage.
Are paid less than men if they do work outside the home.
Are denied the right to divorce.
Are prohibited or discouraged from going to school.
Can’t inherit wealth.
10. For each of the following possible events, indicate whether the global value of the U.S. dollar will A: rise or B: fall.(a) American cars become suddenly more popular abroad.(b) Inflation in the United States accelerates.(c) The United States falls into a recession.(d) Interest rates in the
9. According to the World View on page 472, what was the peso price of a euro in August 2014?
8. If inflation raises U.S. prices by 2 percent and the U.S. dollar appreciates by 5 percent, by how much does the foreign price of U.S. exports change? %
6. If a PlayStation 3 costs 20,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is(a) 110 yen 5 $1?(b) 1 yen 5 $0.009?(c) 100 yen 5 $1?
5. If a pound of U.S. pork cost 40 baht in Thailand before the Asian crisis (p. 476), how much did it cost after the devaluation?
4. If a McDonald’s Big Mac sells for $4.00, how much will it cost in the currencies of(a) Brazil?(b) Japan?(c) Indonesia?(See World View, p. 472.)
3. How many Ukrainian hryvnia (see p. 476) could you buy with one U.S. dollar(a) Before the Russian invasion?(b) After the Russian invasion?
2. If a euro is worth $1.20, what is the euro price of a dollar?
1. According to the World View on page 472, which nation had(a) The cheapest currency?(b) The most expensive currency?
10. Why does the World View on page 481 say the undervalued yuan is “more bane than boom”?
9. Who in Mexico is helped or hurt by a strong U.S. dollar?Redo the World View on p. 475 for Mexicans. LO22-3
8. How would each of these events affect the supply or demand for Japanese yen? LO22-1(a) Stronger U.S. economic growth.(b) A decline in Japanese interest rates.(c) Higher inflation in the United States.(d) A Japanese tsunami.
7. If a nation’s currency depreciates, are the reduced export prices that result “unfair”? LO22-3
6. Why did the value of the Ukrainian hryvnia depreciate so much when Russia invaded (p. 476)? LO22-2
5. In what sense do fixed exchange rates permit a country to“export its inflation”? LO22-1
4. Under what conditions would a country welcome a balance-of-payments deficit? When would it not want a deficit? LO22-3
3. How would rapid inflation in Canada affect U.S. tourism travel to Canada? Does it make any difference whether the exchange rate between Canadian and U.S. dollars is fixed or flexible? LO22-2
2. How do changes in the value of the U.S. dollar affect foreign enrollments at U.S. colleges? LO22-3
1. Why would a decline in the value of the dollar prompt foreign manufacturers such as BMW to build production plants in the United States? LO22-3
Flexible exchange rates eliminate balance-of-payments problems and the crises that accompany them. But complete flexibility can lead to disruptive changes. To avoid this contingency, many countries prefer to adopt managed exchange rates—that is, rates determined by the market but subject to
To maintain fixed exchange rates, monetary authorities must enter the market to buy and sell foreign exchange.To do so, deficit countries must have foreign exchange reserves. In the absence of sufficient reserves, a country can maintain fixed exchange rates only if it’s willing to alter basic
Under a system of fixed exchange rates, changes in the supply and demand for a specific currency can’t be expressed in exchange rate movements. Instead such shifts will be reflected in excess demand for or supply of that currency. Such market imbalances are referred to as balance-of-payments
Changes in exchange rates are often resisted. Producers of export goods don’t want their currencies to rise in value(appreciate); importers and tourists dislike it when their currencies fall in value (depreciate). LO22-3
The equilibrium exchange rate is subject to any and all shifts of supply and demand for foreign exchange. If relative incomes, prices, or interest rates change, the demand for foreign exchange will be affected. A depreciation is a change in market exchange rates that makes one country’s currency
The balance of payments summarizes a country’s international transactions. Its components are the trade balance, the current account balance, and the capital account balance.The current and capital accounts must offset each other. LO22-1
Foreign currencies have value because they can be used to acquire goods and resources from other countries.Accordingly, the supply of and demand for foreign currency reflect the demands for imports and exports, for international investment, and for overseas activities of governments. LO22-1
Exchange rates are the mechanism for translating the value of one national currency into the equivalent value of another. An exchange rate of $1 5 2 euros means that one dollar is worth two euros in foreign exchange markets. LO22-2
Money serves the same purposes in international trade as it does in the domestic economy—namely, to facilitate specialization and market exchanges. The basic challenge of international finance is to create acceptable standards of value from the various currencies maintained by separate countries.
Alter market supply or demand so they intersect at the fixed rate e1.Since fixed exchange rates were the initial objective of this intervention, only the second alternative is of immediate interest
Allow exchange rates to rise to e2 (Figure 22.4), thereby eliminating the excess demand for pounds.
After reading this chapter, you should know LO22-1 The sources of foreign exchange demand and supply.LO22-2 How exchange rates are established.LO22-3 How changes in exchange rates affect prices, output, and trade flows.22 CHAPTER LEARNING OBJECTIVES
Should governments intervene to limit currency fluctuations?International Finance
What causes the international value of currencies to change?
What determines the value of one country’s money compared to the value of another’s?
LO22-3 How changes in exchange rates affect prices, output, and trade flows.
LO22-2 How exchange rates are established.
-1 The sources of foreign exchange demand and supply.
LO21-3
Graph your answers.1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16$16 15 14 13 12 11 10 98 76 54 32 1QUANTITY (number of CDs)PRICE (dollars per CD)
(i) The new market price.(ii) Domestic consumption.(iii) Domestic production.(c) If a tariff of $2 per CD is imposed, what will be(i) The market price?(ii) Domestic consumption?(iii) Domestic production?
(a) Graph these market conditions and identify(i) The equilibrium price.(ii) The equilibrium quantity.(b) Now suppose that foreigners enter the market, offering to sell an unlimited supply of CDs for$6 apiece. Illustrate and identify
Quantity supplied 8 7 6 5 4 3 2 1 Quantity demanded 2 4 6 8 10 12 14 16
8. Suppose the following table reflects the domestic supply and demand for compact discs (CDs):Price ($) 18 16 14 12 10 8 6 4
7. Suppose the two islands in Problem 4 agree that the terms of trade will be one for one and exchange 10 pearls for 10 pineapples.(a) If Alpha produced 6 pearls and 15 pineapples while Beta produced 30 pearls and Alpha:8 pineapples before they decided to trade, how many pearls would each be
6. (a) What was the price difference between U.S. and Chinese solar panels in 2013?(b) How much money did U.S. consumers save as a result of this price difference if they purchased 2,000 megawatts of Chinese paneling in 2013?(c) By how much did the price of Chinese solar panels rise in 2014 as a
(a) How much more are U.S. consumers paying for the 24 billion pounds of sugar they consume each year as a result of the quotas on sugar imports? (See News, p. 461.)(b) How much sales revenue are foreign sugar producers losing as a result of those same quotas?
3. If it takes 15 farmworkers to harvest 1 ton of strawberries and 3 farmworkers to harvest 1 ton of wheat, what is the opportunity cost of 5 tons of strawberries?(a) Graph the production possibilities confronting each island.(b) What is the opportunity cost of pineapples on each island (before
2. Suppose a country can produce a maximum of 12,000 jumbo airliners or 2,000 aircraft carriers.(a) What is the opportunity cost of an aircraft carrier?(b) If another country offers to trade eight planes for one aircraft carrier, should the offer be accepted?(c) What is the implied price of the
(2)(b) The two biggest sources of imports? (1)(2)
1. Which countries are(a) the two largest export markets for the United States? (See Table 21.3.) (1)
10. Has the tariff on Chinese solar panels (p. 458) affected you or your family? Who has been affected? LO21-3
9. Who gains and who loses from nontariff barriers to Mexican trucks (World View, p. 462)? What made President Obama offer renewed negotiations? LO21-3
8. According to the U.S. Department of Commerce, three candy-making jobs are lost for every one job protected by import quotas in the raw sugar industry. How does this happen? LO21-3
7. On the basis of the News on page 464, how do U.S.furniture manufacturers feel about NAFTA? How about farmers? LO21-3
6. Domestic producers often base their demands for import protection on the fact that workers in country X are paid substandard wages. Is this a valid argument for protection?LO21-1
5. Suppose we refused to sell goods to any country that reduced or halted its exports to us. Who would benefit and who would lose from such retaliation? LO21-2
4. How does international trade restrain the price behavior of domestic firms? LO21-3
3. If a nation exported much of its output but imported little, would it be better or worse off? How about the reverse—that is, exporting little but importing a lot? LO21-2
2. What would be the effects of a law requiring bilateral trade balances? LO21-2
1. Suppose a lawyer can type faster than any secretary.Should the lawyer do her own typing? Can you demonstrate the validity of your answer? LO21-1
Trade barriers take many forms. Embargoes are outright prohibitions against import or export of particular goods.
Resistance to trade emanates from workers and firms that must compete with imports. Even though the country as a whole stands to benefit from trade, these individuals and companies may lose jobs and incomes in the process.LO21-3
The terms of trade—the rate at which goods are exchanged—are subject to the forces of international supply and demand. The terms of trade will lie somewhere between the opportunity costs of the trading partners. The terms of trade determine how the gains from trade are shared.LO21-2
One way to determine where comparative advantage lies is to compare the quantity of good A that must be given up in order to get a given quantity of good B from domestic production. If the same quantity of B can be obtained for less A by engaging in world trade, we have a comparative advantage in
International trade permits each country to specialize in areas of relative efficiency, increasing world output. For each country, the gains from trade are reflected in consumption possibilities that exceed production possibilities.LO21-2
Australia, Cuba, France, Mexico, and New Zealand also joined in the tariff wars.
Canada reacted to high duties on many food products, logs, and timber by raising tariffs threefold in August 1932.
Italy retaliated against tariffs on hats and olive oil with high tariffs on U.S. and French automobiles in June 1930.
Switzerland, objecting to new U.S. tariffs on watches, embroideries, and shoes, boycotted American exports.
Spain passed the Wais tariff in July in reaction to U.S. tariffs on grapes, oranges, cork, and onions.
LO21-3 How trade barriers affect prices, output, and incomes
LO21-2 What the gains from trade are.

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