Course: ECO 110

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Unit 11 Practice Problem »

Unit 11 Practice Problem

Unit 11 Practice Problem

1. Describe what happens to net exports in the US if people in the United States have an increase in incomes and want to buy more goods produced overseas.
2. Describe what happens to net exports in the US if people in Europe have a decrease in incomes and want to buy less goods from the US
3. Draw a graph that shows the exchange rate of the euro to the dollar.  On the horizontal axis put the quantity of US$ and on the vertical axis is the price of euros per dollar.  Then draw on the graph a demand curve which is the demand for dollars and a supply curve which is the supply of dollars. We know that the Fed has been increasing the supply of dollars through expansionary monetary policy, Show the increase in the money supply on the graph,  What happens to the price in terms of euros per dollar?