Font Paragraph 1 4 points Would each of the following groups

Font Paragraph 1. (4 points) Would each of the following groups be happy or unhappy if the U.S dolla appreciated? Explain clearly. Answers without explanation receive 0 pount a. Dutch pension funds holding U.S. govenment bonds b. US. manufacturing industries c. Australian tourists planning a trip to the United States d. an American firm trying to purchase property overseas 2. A case study in the chapter analyzed purchasing-power parity for purchasing-power parity for several countries using the price of Big Macs. Here are data for a few more countries Country Hungary Czech Republic Brazil Canada 2,100 pesos 900 forints 75 korunas 13.5 real 5.84 C$ realS 4.02 real\' a. (5 points) Suppose the U.S. price of a Big Mac was $4.00 Compute the predicted b. (1 point) How well does the theory of purchasing-power parity explain exchange exchange rate of the local currency per U.S. dollar rate? Congress is considering an investment tax credit, which subsidizes domestic investment. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance? Explain clearly. Answers without explanation receive O pount to the rise in the U.S. budget deficit On the other hand, the popular press sometunes SAMSUNG

Solution

Answer-- 1

Dutch pension fund holding US Government Bonds

If the US dollar appreciated then the Dutch pension fund holding US government bonds will happy. Because they get more Dutch guilders for each dollar they earned from the US. Generally, we taught about the currency appreciation, it is benefitted to invest in a foreign country when their currency appreciated.

US manufacturing industries

If the home countries currency appreciated then the manufacturing industries will unhappy. It is because their prices would be higher in terms of foreign currency. It would decrease the overall sales of the company.

Australian tourists planning to a trip to the United States

If the Australian tourists are planning to a trip to the US will unhappy. It is because they will get very less US dollar in terms of their currency. So this will affect the overall expenses of the tourists and it will make their vacation expensive.

An American firm trying to purchase property overseas

If an American firm trying to purchase property overseas will happy when the currency appreciated. It is because those people get more other currency in terms of US dollar and they can buy more property with low cost.

Answer--2

A)

We know that the purchasing power parity theory explains that the price of goods in the dollar should be the same regardless of what country we go to. In the given problem we can calculate the predicted exchange rate by using the purchasing power parity by just dividing Big mac price with the US dollar. That is,

225 Forints/$

B)

As per the previous question we see that the correlation between actual exchange rate and the predicted exchange rate. So it is very easy to predict the actual exchange rate. So we can say that the PPP explains exact or may hold some goods or it may hold percentage change.

Answer--3

National saving increases

Domestic investment Increases

Net capital outflow Decreases

The interest rate Increases

The exchange rate Increases

Trade balance Decreases

Country	Predicted exchange rate
Chile	525 Pesos/$
Hungary	225 Forints/$
Czech Republic	18.75 Korunas/$
Brazil	3.375 Real/$
Canada	1.46 C$/$