Transportation Costs and Potential Foreign Markets A For th

Transportation Costs and Potential Foreign Markets -

(A) For the majority of the twentieth century, the vast majority of U.S. firms that relocated moved to Canada. Why? (SHOW FORMULA USED TO SOLVE PROBLEM)

Transportation Costs and Taxes -

(B) Taxes are similiar in some ways to \"cheap foreign labor\". Suppose corporate taxes in the U.S. are higher than in most Latin American countries. What balancing benefit could keep companies from leaving the U.S. in order to lower their tax bill? (SHOW FORMULA USED TO SOLVE PROBLEM)

Exchange Rates -

(C) What is a depreciation of the dollar relative to a foreign currency also said to be a weakening of the dollar? (SHOW FORMULA USED TO SOLVE PROBLEM)

(D) There\'s a macroeconomic measure known as the trade balance. The trade balance is U.S. Exports - U.S. Imports. If the dollar appreciates relative to all other major foreign currencies, what happens to the trade balance? (SHOW FORMULA USED TO SOLVE PROBLEM)

Solution

a. The U.S. import contracts are written in foreign currency and the U.S. export contracts are written in dollar. (Imports increase, exports constant, trade deficit increases)

b. The U.S. import contracts are written in dollar and the U.S. export contracts are written in foreign currency. (Exports increase, imports constant, trade deficit improves. So this option is correct)

c. Both of the U.S. import and export contracts are written in dollar. (Unchanged)

d. Both of the U.S. import and export contracts are written in foreign currency. (Both exports and imports increase but as the trade deficit is there, it will increase the deficit.)

Correct option is