managerial economics_6 - rate creating additional demand...

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4. Explain why the U.S. demand for Brazilian real is downward sloping and the supply of reals to Americans is upward sloping. => When the exchange rate falls, it costs fewer Brazilian to buy a US dollar so we would say that the dollar has depreciated. If we have lower demand for Brazil products then we will have fewer people supplying US $ to exchange them for Brazilian real. The decrease in the value of the dollar generates a decrease in supply of dollars, so it is a positive relationship. That’s why the supply of reals to Americans is upward sloping. In the mean time, the price of US products in Brazil has fallen which should result in increased demand for US products. The increased demand for imported US products should increase demand for dollars as more foreigners convert their currency to US $s to buy US products. In this case, the decrease in the exchange
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Unformatted text preview: rate creating additional demand for US $s and thus we have a negative relationship between the price of a dollar and demand for dollars. That’s why the U.S. demand for Brazilian real is downward sloping. Assuming a system of floating exchange rates between Brazil and the United States, indicate whether each of the following would cause the Brazilian real to appreciate or depreciate: (Please draw a graph for each of the situation). a. The United States unilaterally reduces tariffs on Brazilian products. => Appreciate Exchange rate Real b. Brazil encounters severe inflation. => Depreciate Exchange rate Real c. Deteriorating political relations reduce American tourism in Brazil. => Depreciate Exchange Rate Real...
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managerial economics_6 - rate creating additional demand...

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