| mod 41 | mod 42 | mod 43 | mod 44 | mod 45 |
|---|---|---|---|---|
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credit
Are exports considered credit or debit?
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supply and demand in the foreign exchange market
What determines the exchange rate of a currency?
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the government lets the exchange rate go wherever the market takes it
What is a floating exchange rate?
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yes, the government can change them when needed
Can fixed exchange rates change?
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]“The Structure of Macroeconomic Analysis”
Starting point, pivotal event, initial effect, secondary and long-run effects are all a part of this
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debit
Are imports considered credit or debt?
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Real exchange rates are adjusted for price differences between countries
What is the difference between real exchange rates and nominal exchange rates?
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when a country uses foreign exchange reserves to buy or sell currency to maintain a target exchange rate
What are exchange market interventions?
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reduces it
Does devaluation reduce the fixed exchange rate or increase it?
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starting point
The first step in macroeconomic structural analysis
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To import goods (which is part of balance of payment), you need foreign currency
Why does a balance of payment transactions affect the foreign currency market?
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higher exchange rates means products are more expensive to buyers; people would buy less
Why is demand for currency downward sloping?
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increased
If the target exchange rate is above equilibrium, does the interest rate need to be increased or decreased?
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Revaluation causes net exports to decrease due to the currency being more expensive, so AD decreases
Why does revaluation decrease aggregate demand?
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pivotal event
Country entering / moving out of a recession, An increase / decrease in consumer confidence, an increase / decrease in expected inflation are all examples of this
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0
What should current accounts plus financial accounts be equal to
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when a currency becomes more valuable in terms of other currencies
What does it mean when a currency appreciates?
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to have stocks of foreign currency that can be used to buy a country’s own currency
What is the purpose of foreign exchange reserves?
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they lead to lower exchange rates (depreciation)
What effect do lower interest rates have on the exchange rate?
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the initial effect of the event
The short-run effects are often called this in macroeconomic structure analysis
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capital inflows affect the supply of loanable funds
Why do financial accounts impact the loanable funds market?
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the nominal exchange rate at which a basket of goods would have the same cost between two countries
What is the purchasing power parity?
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macroeconomic policy remains unrestricted and can be used to stabilize the economy
What is the main benefit of floating rates?
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Lower interest rates increase investment abroad, decreasing demand and increasing supply for one’s own currency.
Why do lower interest rates lead to lower exchange rates?
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Secondary effects
International capital flow and international trade are a part of this
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