Macroeconomics problems Essay Example | Topics and Well Written Essays - 2000 words

Macroeconomics problems - Essay Exampleb) Assume the exchange rate changes. Now, 1 euro=$1.20. Showing all work, what does Wanda pay for the wine? What does Pierre pay for the computer? In this case, there is a change in the individual rates of exchange between the euro and the dollar. Currently, 1 euro=$1.20 hence Wanda testament drip (1000*1.20) 1200 dollars on a feeding bottle of French wine. On the other hand, Pierre will spend (2000/1.20) 1,666.67 Euros on the purchase of an American computer. c) Which currency appreciated? Explain. Taking a closer look at the ii currencies, it is evident that the Euro appreciated against the dollar. According to macroeconomic theory, appreciation of a currency refers to the addition in the assess of one international currency against the other in the sense that the appreciating currency is able to purchase more(prenominal) of the other currency (Krugman & Wells 100). In the above mentioned case, the dollar and the Euro are international currency that had an initial exchange rate of 1 euro=$1.08. However, there was a change in the exchange rates and the electric current rate stands at 1 euro=1.20. This means that the dollar has to fetch more additional units to purchase a single unit of a Euro. This is evident in the case of an American purchasing a bottle of wine and has to pay an initial price of 1080 dollars. Since the euro has appreciated, the American will have to pay a high price of 1200 for the same bottle of French wine. Consumers using the Euro have a higher purchasing actor compared to those using the dollar. SECTION TWO a) In this section, you will set up a balance of payments table. enliven read chapter 26. A BOP has three accounts. You will need to place each item in its proper account and have a dollar value for the total of each account. The table will be in billions. Please show, plus or minus, for each number. Credits 000,000 ($) Debits 000,000 ($) A. Current Account (1) Exports (2) Imports (3) terminal Transfers (4) Net Interest Income Balance B. Capital Account (5) Foreign Investments in the U.S. (6) U.S. Investments Abroad Balance (7) statistical Discrepancies Overall Balance C. Official Reserve Account +2,421 +150 +220 +1150 +250 +30 -2,971 -180 -900 -40 -30 b) What does the official settlements number indicate? Be precise in explaining this. Based on the above table, the official settlements number is -30 and this indicates that the US has an increase in its foreign militia and that there is also a decrease in the dollar reserves held by foreign primal banks (Krugman & Wells 113). The decrease in dollar reserves among foreign central banks count as debits in the Balance Of Payments account. SECTION THREE a) Under what conditions would the feed sell presidency securities? The feed would sell government securities under conditions such(prenominal) as inflation, employment and national output. Under such cases, the Fed does not have control but can only influence such conditions to its favor. The Fed can create an effect on such conditions by increasing or reducing the pathetic term rate interest especially through open market operations. Some of the government securities apply during open market operations includes treasury bills, bonds and notes (Krugman & Wells 119). The control of money supply offers tangible solutions to the conditions mentioned above. When the Fed is targeting to increase the supply of money in the economy, there will be the purchase of securities. On the