When producing jetliners, suppose that Boeing employs labor and materials whose costs are denominated in dollars and Chinese yuan respectively.If the dollar's exchange value depreciates 20 percent against the yuan, the yuan-denominated cost of a Boeing jetliner falls by an amount less than 20 percent.

Question

Quizplus · Accepted Answer

A depreciation in the value of the dollar means that it takes more dollars to buy the same amount of yuan. This implies that the cost of materials denominated in yuan becomes more expensive in dollar terms. Therefore, the yuan-denominated cost of a Boeing jetliner falls by an amount less than 20 percent due to the increase in the cost of materials.

When Producing Jetliners, Suppose That Boeing Employs Labor and Materials