Week 14 — Exchange-Rate Report: From a Stronger Dollar to the Balance of Payments — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 13 of the term — work four figures from the course's exchange-rate chain and balance of payments, explain what each one means, and tell a cousin who sells abroad what a strong dollar could, and could not, do to her shop.

This week you learned to read an exchange rate as the foreign currency one dollar buys, to trace a stronger dollar through the prices of exports and imports, and to keep the books with the current account and the financial account. In Week 2 you met net exports as a part of GDP, in Week 5 you learned to shift aggregate demand, and in Week 13 you saw why countries trade and how to read the trade balance. In this assignment you work four short problems, interpret each one, and explain to a cousin what a strong dollar could, and could not, do to her shop. This week's lecture tutorial, quiz, discussion, and Model Workshop practice the same ideas from other angles.

The task

This report uses the week's illustrative numbers, constructed for this course and not real data: the exchange-rate chain, where the dollar goes from 1 dollar = 100 yen to 1 dollar = 120 yen, a U.S. car is priced at 25,000 dollars, and a Japanese machine is priced at 1,200,000 yen; and the course's national account, where exports are 100 and imports are 150, in billions of dollars.

Work these four problems, showing every step on its own line:

1. In the illustrative exchange-rate chain, a U.S. car is priced at 25,000 dollars and the dollar goes from 1 dollar = 100 yen to 1 dollar = 120 yen. What does the car cost a buyer in Japan after the move, in yen?
2. In the same illustrative chain, a machine made in Japan is priced at 1,200,000 yen and the dollar goes from 1 dollar = 100 yen to 1 dollar = 120 yen. What does the machine cost a buyer in the United States after the move, in dollars?
3. In the same illustrative chain, the dollar goes from 1 dollar = 100 yen to 1 dollar = 120 yen. By what percentage did the number of yen one dollar buys change?
4. In the course's illustrative national account, exports are 100 and imports are 150, in billions of dollars, with no income or transfer flows. What is the financial-account balance, in billions of dollars?

Beside each figure, add one brief interpretation in plain words. For problem 1, say what the yen price means for U.S. exports, and why an appreciation is not good news for exporters. For problem 2, say what the dollar price means for U.S. imports, and what the export and import links together do to net exports and to aggregate demand, naming the curve, the direction, and what happens to the price level and real output. For problem 3, say whether the move is an appreciation or a depreciation of the dollar and why, and what a slide back to 100 yen would do to every arrow of the price chain. For problem 4, say what the current account and the financial account are and why they sum to zero, and why a current-account deficit is not money that disappears.

Explain it to a non-expert

Your cousin sells handmade candles online, and about half of her orders come from buyers in other countries. She hears a news anchor say the dollar is the strongest it has been in years, and asks whether that is good news for her shop. Write a 3–5 sentence message she could follow: what a stronger dollar does to the price her overseas buyers see, who gains and who loses when the dollar strengthens, and one honest limit, such as the chain holding other things equal while her buyers' own incomes also matter. Explain any technical term in everyday words. More than one good limit can be defended.

For a different, ungraded example, imagine a town that raises the toll on the bridge into its market square, and a farm-stand owner across the river who asks whether sales will change. Model message: "A higher toll makes the trip to the square cost more, so some shoppers from across the river will stay home or shop closer to them. Your prices did not change, but the total cost of reaching you went up for those buyers. Shoppers who live on your side of the river are not affected, and some may come more often if the square is less crowded. How much your sales fall also depends on how much those shoppers want your produce, which the toll does not decide."

Use that pattern for the strong dollar, with your own explanation.

Here is one honest note about scope: every number in this assignment is illustrative, so do not add a real exchange rate, a real trade figure, or a real current-account balance from the news. Whether a strong dollar is good or bad for a country is a contested question with a positive part and a normative part; this report keys only on the model's numbers, and your message for your cousin should keep what the model predicts apart from what you think matters most.

How to work

1. Draft all four figures, the four brief interpretations, and your message for your cousin.
2. Check your draft against the attached scoring criteria, criterion by criterion: did you multiply the dollar price by the rate and divide the yen price by it, did you divide the change in the rate by the starting rate, did you trace both links before naming the change in net exports, and is every figure explained in plain words?
3. Revise at least one calculation or explanation, and write two or three sentences on what you changed and why.

Deliverables

Submit your exchange-rate report with all four figures, their brief interpretations, your message for your cousin, and your two or three sentences on the revision. You may submit it written, recorded as audio or video with a transcript, or as a labelled sketch of the price chain and the two accounts with a short note; every form is graded by the same scoring criteria.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, reasoning, and explanations must be your own work. This version is built to be completed without any AI tool, and no part of it requires one. Use the chapter, your notes, and a calculator or spreadsheet, and show every step so your work can be checked. Do not copy another student's figures or wording.

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