a If the exchange rate changes from 170 per British pound 1

a.       If the exchange rate changes from $1.70 per British pound (1) to $1.72 per 1, has the pound () appreciated or depreciated? Has the dollar appreciated or depreciated?

         b.      What happens to the -price that British residents pay for a $500 U.S. export good due to the exchange rate change above?

         c.       What happens to the $-price that U.S. residents pay for a 1200 import good from Britain?

         d.      How do these changes affect the economic welfare of U.S. exporters and U.S. importers?

Solution

a. here the dollar is depreciated and pound is appreciated.

b. the britishres should pay lesser units of pounds to own the product worth of $500.

c. the US people have to pay more units of dollars to own the product worth of 1200 pounds

d. in this case the exporters will be benefited and the importers will be suffered. importers have to pay more units of dollars in this case and the exporters can receive more units of dollars which is benefited to them.