nominal exchange rate is …
Can Exports Exceed GDP?
A in terms of B equals to
To Convert a good in A currency to B currency
If inflation rates were exactly equal,
If there is no capital control
Assume that the uncovered interest parity condition holds. Also assume that the U.S. interest rate is less than the U.K. interest rate. Given this information, we know that investors expect
demand for domestic goods
Domestic demand for goods
real exchange rate affects domestic Demand in terms of …but does not affect
The Determinants of Exports
AA has a positive slope means
AA is flatter than DD implies
NX line is derived by
The goods market is in equilibrium when… At the equilibrium level of output, the trade balance is…
As domestic output increases, the trade balance moves from
difference you should note between open and closed economies
Contrast the effect of increase in domestic demand & increase in foreign demand
the domestic demand for goods and the demand for domestic goods are equal if
when there is a real depreciation, what components of ZZ is affected?
Summarized Effects of a Depreciation
Marshall-Lerner condition is
An increase in investment must be reflected in either …
An increase in the budget deficit must be reflected in …
A country with a high saving rate must have either …
UIP implication: current exchange rate depends on the
why would increase in US interest rate appreciate the dollar?
Assume that the future expected exchange rate remain unchanged. This implies that the appreciation of dollar today leads to…
reduction in foreign income leads to reduction in imports because
An increase in the interest rate reduces output through
The Effects of Expansionary Fiscal Policy in an Open Economy
Under fixed exchange rates, the central bank gives up monetary policy as a policy instrument.
TRILEMMA IN INTERNATIONAL ECONOMICS: Impossible trinity refers to
Cons of fixing exchange rate
Fiscal policy has a … effect on output in an economy with fixed exchange rates than in an economy with flexible exchange rates.
the interest parity condition implies that the domestic currency will …in response to an increase in the expected exchange rate.
If foreign investors are reluctant to lend to the US(buy US bonds), there will be pressure for the dollar to…
Why would deflation limit the ability of expansionary monetary policy to increase output?
How can monetary policy correct trade deficit?
By committing to a particular exchange rate, a country also gives up control of its interest rate, and they must match movements in the foreign interest rate risking unwanted effects on its own activity.” Give example of an unwanted effect.