Exchange Rates – Admission/Application Essay Example
EXCHANGE RATES Assuming other countries do not change their own trade policies, what would be the impact on the value of the dollar relative to other currencies?
If the other countries do not change their trading policies, then their currency would reduce in relation to the dollar. The dollar would increase in value since there will be less imports while the export remains the same and may even increase. Their exports may even increase and, therefore, the United States may be experiencing favorable terms of trade (Hellerstein, 2006). The other countries will experience fewer exports and possibly more imports and therefore having unfavorable terms of trade. Since the United States is one of the super-powers, their withdrawal from importing cars would be a massive blow to their suppliers and the rest of the markets.
What would be the effect on the quantity of other items imported?
The number of other imported items would increase. However, this is dependent on many other issues and the budget of the country. If there are items that need to be imported in larger quantities, then it would increase the number of other items to be imported. If there were already enough items imported, then there would be no change in the number of other items imported and therefore the United States would be saving more money and having better terms of trade (Hellerstein, 2006). This would also depend on whether the country will have to import materials to make their automobiles and meet the demand of the citizens.
What would be the effect on the jobs in U.S. industries that did not participate in the making of autos?
The other industries would experience an increase in the number of jobs. This is because there would be more money to invest in the other industries as the money that was previously used to import the automobiles would now be used in the other industries. Therefore, they are bound to be more productive and thus requiring more manpower. The economy is likely to experience a boost and therefore grow at a faster rate than it was before (Hellerstein, 2006). Therefore, this decreases the level of unemployment in the United States. Favorable terms of trade would improve the economic status of the citizens, and the country in both the short and long run, since the country will have increased their savings.
Hellerstein, R. D. (2006). “Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? Current Issues in Economics and Finance Federal Reserve Bank of New York, 12(6), 1-6 .