Trade Deficits and J-Curve Adjustment Paths. Assume the United States has the fo

Question

Trade Deficits and J-Curve Adjustment Paths. Assume the United States has the following import/export volumes and prices. It undertakes a major "devaluation" of the dollar, say 18% on average against all major trading partner currencies. What is the pre-devaluation and post-devaluation trade balance? Initial spot exchange rate, $/fo Price of exports, dollars ($) Price of imports, foreign currency (fc) Quantity of exports, units Quantity of imports, units Percentage devaluation of the dollar 1.91 21.1400 10.4600 140 160 18.00 Revenues from exports, U.S. dollars Expenditures on imports, foreign currency Expenditures on imports, U.S. dollars Pre-devaluation trade balance $ 2,959.60 1,673.60 3,196.58 (236.98) fc The new spot exchange rate after devaluation is $ 2.3292 /fc. (Round to four decimal places.) The new expenditures on imports in U.S. dollars are $. (Round to the nearest cent.)

Explanation / Answer

New expenditures on import in US Dollars are = $2.3292 * quantity of imports * price of imports

= $2.3292 * 160 * 10.46

= $ 3898.15

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