Recent evidence regarding the exchange-rate pass-through effect in the U.S. reflects a declining trend. How can this be explained?
What will be an ideal response?
There is evidence that the exchange-rate pass-through effect to import prices has been declining in developing economies, particularly for the U.S. One explanation offered for this trend is that the share of imports with prices more sensitive to exchange rate changes (such as food and beverages) has been declining. Also important is the fact that foreign exporters are increasingly "pricing to market," where they adjust their export prices to minimize the impact on U.S. import prices as exchange rates change.
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In Problem 14, do firms enter or exit the market in the long run? What is the market price and the equilibrium quantity in the long run?
What will be an ideal response?
When the exchange rate between dollars and pounds moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has ________.
A. appreciated B. inflated C. depreciated D. deflated