Problem

1. What is meant by exchange-rate overshooting? Why does it occur?

2. What methods do currency forecasters use to predict future changes in exchange rates?

3. For a tutorial of this carbaughxtra swlearnmg website Assuming market-determined exchange rates, use supply and demand schedules for pounds to analyze the effect on the exchange rate (dollars per pound) between the u.s. dollar and the British pound under each of the following circumstances:

a. Voter polls suggest that Britain's conservative government will be replaced by radicals who pledge to nationalize all foreign owned assets.

b. Both the British economy and u.s. economy slide into recession, but the British recession is less severe than the U.s. recession.

c. The Federal Reserve adopts a tight monetary policy that dramatically increases U.S. interest rates.

d. Britain's oil production in the North Sea decreases, and exports to the United States fall.

e. The United States unilaterally reduces tariffs on British products.

f. Britain encounters severe inflation, while price stability exists in the United States.

g. Fears of terrorism reduce U.S. tourism in Britain.

h. The British government invites U.S. firms to invest in British oil fields.

I. The rate of productivity growth in Britain decreases sharply.

J. An economic boom occurs in Britain, which induces the British to purchase more U.S.-made autos, trucks, and computers.

k. Ten-percent inflation occurs in both Britain and the United States.