Chapter 5

1. Suppose that the small nation of Figure 5.1 impose a 150% (rather than 100%) ad valorem tariff on the imports of commodity X. Draw a figure similar to Figure 5.1 and determine:
a) The level of consumption, production, imports, and tariff revenue on commodity X.
b) The consumption, production, trade, and revenue effects of the tariff.
2. For the nation of Problem 1:
a) Determine the dollar value of the consumer surplus before and after the imposition of the tariff.
b) Of the increase in the revenue of producers with the tariff (as compared with their revenues under free trade), how much represents increased production costs? Increased rent, or producer surplus?
Exchange Rate and Foreign Exchange Market Chapter 11

1. If the U.S. supply curve for euros shifted up and intersected the U.S. demand curve for euros at point B in Figure 11.1 in the text, what would be…
a) The equilibrium exchange rate?
b) The equilibrium quantity demanded and supplied of euros in the United States?
2. If the U.S. supply curve for euros shifted down and intersected the U.S. demand curve for euros at point C in Figure 11.1 in the text, what would be
a) The equilibrium exchange rate?
b) The equilibrium quantity demanded and supplied of euros in the United States?
3. Calculate the forward discount or premium for the following spot and three month forward rates:
a) SR = \$2.00/ 1 Euro and FR= \$2.01/ 1 Euro
b) SR= \$2.00/ 1 Euro and FR = \$1.96/ 1 Euro
Chapter 12 – You should answer the following four questions graphically.
4. Explain what would be the effect on the dollar/ euro exchange rate if economic growth increased in the European Monetary Union (EMU) but not in the United States.
5. Explain what would be the effect on the dollar/ euro exchange rate if the price level increased less in the United States than in European Monetary Union (EMU).
6. Explain what would happen to the dollar/Euro exchange rate if the interest rate increased in the United States but remained unchanged in the European Monetary Union (EMU).
7. Explain what would happen to the dollar/Euro exchange rate if suddenly the expectation arises in the U.S. dollar will appreciate in the future.