Question 1:

1. Show the effect of dollar appreciation and depreciation with the euro on the price of U.S. exports and imports as shown in the updated table.

Effect of Dollar Appreciation and Depreciation on U.S. Exports and imports

R = EURO/$                  DOMESTIC                  JAN09:             JUNE 09:          EFFECT ON EXPORTS

                                    PRICE                          R=0.76              R=0.71              AND IMPORTS(M)

U.S. exports:                 $1,000 

Televisions

U.S.imports :                 Euro 25,000

European cars

                                                                        Jan 08:              Jan 09:

                                                                        R=0.68              R=0.76

U.S. exports :                $ 1,000

Televisions            

U.S.imports :                 Euro 25,000

European cars

Question 2:

If the U.S. economy is operating near full employment and the exchange rate increases (the dollar appreciates), explain why the Federal Reserve will be less inclined to raise interest rates.

Question 3: Application Question 3 in the textbook.

Based on the discussion in this chapter, update the controversy over the value of the Chinese yuan in foreign currency markets. Is China still usingcentral bank foreign exchange policy to maintain the value of the yuan? What is the current policy of the United States on this issue?