drop down options: 1. appreciates/depreciates 2. complete/partial 6. The exchang

Question

drop down options:

1. appreciates/depreciates

2. complete/partial

6. The exchange rate pass-through Aa Aa Suppose a French microwave oven costs 150 in France. When the exchange rate is 0.50 euros for every dollar, compute the price of this good in the United States and enter it in the top row of the following table Hint: Round to the nearest whole number. Price in France Price in the United States Exchange Rate $1 0.50 $1-0.35 150 150 Suppose the new exchange rate is 0.35 per dollar. This means that the euro Compute the new price of a French microwave oven in the United States and enter this value in the bottom row of the table. relative to the dollar. Suppose that when the exchange rate changes by 30% from 0.50 euros to 0.35 euros per dollar, the price of a French microwave oven in the United States changes from $300.00 to $428. This means that pass-through exists. exchange rate

Explanation / Answer

(1)

(a) When exchange rate = 0.50, Price in United states = 150 / 0.5 = $300

(b) When exchange rate = 0.35, Price in United states = 150 / 0.35 = $428

(2) When new exchange rate is 0.35, this means the euro appreciates relative to dollar.

(3) Complete exchange rate pass-through exists.

[% Change in microwave price = ($428/$300) - 1 = 1.4267 - 1 = 0.4267 = 42.67%. Since a 30% change in exchange rate changes the good's price by more than 30%, complete pass-through takes place]

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