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A) Suppose that you received your college degree from Penn State and nailed a great job over in Europe in the summer of 2006

Economics

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A) Suppose that you received your college degree from Penn State and nailed a great job over in Europe in the summer of 2006. Given that your family remains in the US, you make sure that you visit the family every September by traveling from Europe to the US. We are going to compare the cost of this vacation, in terms of euros, during two different periods: September 2007 and September 2017. We assume that the cost of the trip, in terms of $ US, remains the same at $1,000 in both periods. Using the data below, we will compare the euro cost of the trip in September 2007 vs. the euro cost of the trip in September 2017.

 

Data:

9/1/2007 the $ per euro exchange rate is $1.39 per euro

9/1/2017 the $ per euro exchange rate was $1.19 per euro

 

What was the cost of the trip in 2007 measured in euros?

 

B)What was the cost of the trip in 2017 measured in euros?

C) What happened to the value of the dollar between 9/1/07 and 9/1/17?

D) Using the data below, we are now going to use our supply/demand framework for US $ to model the movement in the euro per $ exchange rate between December 2007 (the very beginning of the Great Recession) and November 2008 (pretty much the height of the global financial crisis). Note that the data is given in $ per euro and then converted into euro per dollar. For example, $ 1.2 per euro is converted by 1/1.2 = .833 meaning that $1 = .83 euro (this is the vertical axis on your graph, i.e., euro per $).

 

HAND DRAW a supply and demand diagram like we did numerous times in the lectures labeling the vertical axis as euro per $, the horizontal axis with Quantity of dollars, the initial supply and demand curves labeled with 12/07, Label this initial intersection point as point A. Then you will explain what happened to each curve and WHY between 12/07 and 11/08. Label as point B with your supply and demand curves labeled accordingly (Hint: the two obvious facts during this period is that the 1) US was in a deep recession and 2) we were at the height of the (global) financial crisis (in 11/08). Assume all else is constant.

 

Data:

12/1/2007 the dollar per euro exchange rate is $1.45, so the euro per dollar exchange rate is 1/1.45 = .69 euros per dollar.

11/1/2008 the dollar per euro exchange rate is $1.27, so the euro per dollar exchange rate is 1/1.27=.79 euros per dollar.

 

E) Summarize and explain what happened (and why) in your graph between 12/07 and 11/08