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What does Differences in productivity developments (growth) lead to?
Changes in the real exchange rate in the long run.
What is Long-term nominal exchange rate determined by?
changes in the real exchange rate and by monetary factors.
How do you calculate Aggregate demand?
D = C + I + G + CA
What is C?
consumtion expenditure
What is I?
Investment expenditure
What is G?
Government Purchase
What is CA?
Net international expenditure, current account. In the short run NX = Net export
What happens if our goods become relatively cheaper?
Exports increase and imports decrease (q ↑).
What does The Marshall-Lerner condition states?
That Real depreciation leads to higher net exports. So if q↑ then CA↑
What happens with D if income I↑?
D↑
When is Production reaching equilibrium in the short term?
When D=Y.
Why does Depreciation leads to higher GDP in the short term?
Because when q↑→ CA↑→ D↑→ Y↑
Describe the DD-relation?
It shows equilibrium in product markets. D = Y in the shorterm, if its not Y will increase/decrease so there is equilibrium.
DD curve shows combinations where D = Y
What happens With expansionary fiscal policy?
There will be a higher demand and thus GDP at any given level of the nominal exchange rate.
What does Increased GDP for a given money supply leads to?
Higher interest rates and thus nominal appreciation.
