f01_ps4ans1

f01_ps4ans1 - Problem Set 4 Answers 14.02 Fall 2001 1 True...

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Problem Set 4 Answers 14.02 Fall 2001 1 True or false, explain 1. False. An expensive dollar makes American industries less com- petitive. For tourists however this could be true. 2. False. If the yen becomes weaker and prices of japanes cars are f xed, cars will be cheaper. If there is su cient car in F ation in Japan, however, it could be agood idea to anticipate buying a Japanese car. 3. Depends. If the Colombians debt is denominated in dollars it is true. If his debt is denominated in pesos it is false because the debt has lost value when converted into dollars. 4. False. We expect the European interest rate to be higher now and the same after the depreciation occurs. 5. False. Both countries have the same currency, interest rate parity equation cannot explain the di f erence if there is any. 6. True. If people expect a devaluation, when it happens interest rates must fall according to the UIP equation and investment reacts positively to lower interest rates. 7. True. If Chile generates expectations of devaluation of its currency, interest rates must rise and the demand for money will fall. 8. False. Dollar bills are US issued assets, if the exporter gets payed in dollars, the rest of the world is holding less US assets and there is an increase in net foreign holdings of US assets. 1
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9. False. Neither of these transactions change the net foreign holdings of US assets. 10. False, if there are di
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f01_ps4ans1 - Problem Set 4 Answers 14.02 Fall 2001 1 True...

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