ECON4 Exchange Rates & International Competitiveness Flashcards
If money is entering the country…
it is being supplied
If money is leaving the country…
it is being demanded
what is a floating exchange rate
free market determines ER
What is hot money
Rise in IR causes speculative money flows so a rise in ER
What is the difference between devaluation and depreciation
devaluation is a fixed ER, depreciation is a floating ER
what is the marshall-lerner condition
devaluation only leads to an improvement in teh current account if the sum of elsasticities (for X and M) is of a magnitude more than 1
What condition talks about elasticities of exports and imports
marshall lerner condition
What does the J-curve show
Devaluing the currency in the SR can increase deficit due to fixed contracts and slow reactions- there is a TIME LAG
What can an ER do to inflation
Rise in ER can make imports cheaper, lowering AD, moderating inflation
ER and economic growth
lower rate increases investment as more export opportunities
comptitiveness can have a big effect on…
employment
measures of international competiveness
unit labour costsglobal competitiveness league tablerealtive export pricesterms of tradegrowth rates
Real exchange rate formula
nominal * domestic price level/foreign price level
Name 3 factors that influence competitiveness
exchange ratesQuality/R&DPED
Why are there dynamic gains from trade
widens market so more investment and efficiency
