Homework Help: Macroeconomics

Posted by animal on Wednesday, May 21, 2008 at 12:06am.

Explaining Exchange Rates

Suppose that under the Bretton Woods system, the dollar is pegged to gold at a rate of $35 per ounce and the pound sterling is pegged to the dollar at a rate of $2 = Ł1.

If the dollar is devalued against gold and the pegged rate is changed to $40 per ounce, what does this imply for the exchange value of the pound? Explain your answer.

Macroeconomics - economyst, Wednesday, May 21, 2008 at 9:24am
Think it through. 1oz = $35 and $2=L1, so 1oz = L17.5
Now then, if 1oz = $40 and 1oz remains at L17.5 then $40 = L17.5 or 40/17.5 = L1 or $2.286 = L1

Answer this Question

Related Questions

macro econ - Suppose that under the Bretton Woods system, the dollar is pegged ...
Banking & Money - Couple questions here... "Under fixed exchange rates...
Economics - The nominal interest rate is 12 percent per year in Canada and 8 ...
Economcis - I need some help on the following question, thanks. e = euros ...
Macroeconomics - You read in a newspaper that the nominal interest rate is 12 ...
Macroeconomics - You read in a newspaper that the nominal interest rate is 12 ...
Macroeconomics - Discuss the differences between a flexible exchange rate and a ...
Algebra 1 - In 2000, the internatonal price of gold was $270 per ounce, and the ...
eco - Assume that American rice sells for $100 per bushel, Japanese rice sells ...
Economic Question - Sorry, this is a little long, hope somebody could give me ...

For Further Reading

First Name:
School Subject:
Answer: