Review Class 28 Flashcards
3 main sources of demand for US dollar
- Foreign firms etc. that want to buy goods and services produced in the U.S.
- Foreign firms, households, governments that want to invest in the US
- Currency traders who believe the value of the dollar in the future will be greater than its value today
If interest rates in US go up but EU hasn’t
EU investors want to buy US treasury bonds
Americans buying Japanese cars:
Supply U.S. dollars and demand Japanese yen
3 main determinants of an exchange rate
- Trade ( prices and income are the major determinants in the volume of
- Investment
- Speculation
Among others economists examine the changes of the following three variables to determine the change in exchange rate: income, prices, and _____
Interest rates
- Why an increase in US GDP which is larger than increase in another country gdp typically causes a devaluation of the currency
Us income increase more than foreign incomes
Imports increase more than exports
Overall price increase in us
Substitute domestic product with foreign products
If the interest rate in US goes up (assuming EU stays same)
US financial assets become more attractive because pay more interest
Interest rates and capital inflows
Expansionary monetary policy tend to reduce both:
Imopoets are the difference between
Consumption and domestic income ?
Households own what
All the factors of production
The economy is in long run and short run equilibrium when
Something
Expansionary fiscal policy
Increasing govt expenditures
Lowering become taxes (people have more money and consume and invest more) shift aggregate demand curve to right
Lower interest rates
Determine investment domestic and exchange rates
Y= AD=
(+ I + G + X - M)
