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Assume the United States exports 1,500 computers at a price of $2,000 cach and imports 100 UK autos at a price of £15,000 each. Assume that the dollan/pound exchange rate is $2 per pound. balance prior to a depreciation of the dollars exchange value. 2. (5 points) Suppose the dollars exchange value depeeciates by 10 percent. Assuming that the price clasticity of demand for U.S. exports equals 5 and the price elasticity of demand for U.S imports equals 1, does the dollar depreciation improve or worsen the U.S. trade balance? Why? 3. (5 points) Now assume that the price elasticity of demand for US. exports equals 0.5 and the price elasticity of demand for U.S. imports oquals 0.1. Does this change the outcome? Why? 第5
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Answer #1

BOP balance is the difference between the value of exports & value of imports .

Next to answer question 2 & 3, Marshall Lerner condition of improvement in BOT via depreciation of currency is used

g a) expots, 1500, at pluice- $ 2000, expoơt Receipts = 80 1500 x 2000-3900,000 $ =23 30 5000 30,000$ = 30,090003 hus Vade Balance Value of(expoohs Iimponts) n kam o expoo uwsing Mansh al lesne Condition, which States that the depreeiat 6) 1 mpod -on trade balance, out when 8umot puice elasticity of demand ㅇㅏ exponts & demand Us imposts is 89teater than 1 PEDㅢ Buice el of demand thus 5t 1 c) o aia de wl ad

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