Exchange Rates and the International Money Markets
|
|
- Kevin Lucas
- 7 years ago
- Views:
Transcription
1 Exchange Rates and the International Money Markets
2 Exchange Rates and the International Money Market Copy down these definitions: Net exports (Xn)- the value of a nations total exports(x) minus imports(m). Xn=X-M Price level- The average of all prices of all goods or services in an economy- increase PL increase inflation Bond- a loan from the people or other governments to pay for government spending- repaid with interest Real interest rates- interest rates adjusted to inflation. Higher interest rates= more investments in govt bonds
3 Welcome to Economics! Grading FRQs today- please don t start until I tell you to. Important things to know: Test onwednesday. Covers PPC, CA, S&D, FOREX(today) After School Study Session- Tuesday from 2:45-3:45. or Wednesday Morning 6am FOREX FRQ on Thursday (major grade)
4 Factors that Influence Net Exports (X-M) Foreign incomes demand for U.S. exports Xn Foreign incomes demand for U.S. exports Xn Foreign tariffs on U.S. goods price of U.S. exports X Xn tariffs on U.S. goods price of U.S. exports X Xn
5 U.S. dollars must be used to purchase U.S. goods, services and assets (ex. bonds) (Creates a for $) To buy U.S. goods, services and assets, foreign consumers must their own currency to obtain (demand) U.S. dollars. demand for $ creates supply of foreign currency.
6 Foreign currencies must be used to purchase foreign goods, services and assets. ( for foreign currencies) To buy foreign goods,etc., U.S. consumers must U.S. dollars to obtain (demand) foreign currencies. demand for foreign currency creates supply of $.
7 1 Dollar = 2 Yen What is the Yen price of a $100 TV purchased in the U.S.? What is the Dollar price of a 200 Yen TV purchased in Japan?
8 1 Dollar = 2 Yen 1 Dollar = 4 Yen What is the Yen price of a $100 TV purchased in the U.S.? What is the Dollar price of a 200 Yen TV purchased in Japan?
9 1 Dollar = 1 Yen 1 Dollar = 2 Yen 1 Dollar = 4 Yen Appreciate: in value relative to other currency. Depreciate: in value relative to other currency
10 Get out your notes from yesterday and your graph paper (from yesterday) Be ready to start when the bell rings Remember the afterschool study session today and the before school study session tomorrow. STUDY TONIGHT!!!
11 American consumers give up dollars to get Japanese currency; therefore, Japanese goods seem. cheaper X M Xn Japanese consumers give up of their currency to get American currency; therefore, American goods seem. more expensive X M Xn
12 American consumers give up dollars to get Japanese currency; therefore, Japanese goods seem. more expensive X M Xn Japanese consumers give up of their currency to get American currency; therefore, American goods seem. cheaper X M Xn
13 Exchange Rates The price of a currency in terms of another currency Exchange rates are based on supply and demand in international currency markets (foreign exchange markets). A demand for one currency creates a supply of the other currency. If a currency appreciates relative to another currency, the other currency depreciates.
14 Foreign currency price of $ dollar price of foreign currency Foreign Exchange Market FC/$ Market for the U.S. $ $/FC Market for Foreign Currency S $ S FC P 1 P 1 D $ D FC Q 1 Q $ Equilibrium exchange rate Quantity of $ Supplied/demanded Q 1 Q FC Equilibrium exchange rate Quantity of $ Supplied/demanded
15 Americans increase their demand for European goods $ / Euros Market for Euros Market for $ S Euros Euros/ $ S$ P2 P P S$ 2 D Euros2 D Euros P 2 D $ Q Q 2 Q Q 2 Q of Euros Q of $ Euro: appreciates Dollar: depreciates
16 Interest rates in the U.S. rise. $ / Euros Market for Euros Market for $ Euros / $ S Euros S $ P S Euros2 P 2 P P 2 D Euros D $2 D $ Q Q 2 Euro: Depreciates Q Q 2 Q of Euros Q of $ Appreciates Dollar:
17 The U.S. price level increases. Japanese Perspective $ / Yen Market for Japanese Yen Market for $ S Yen2 Yen / $ S $ P 2 P S Yen P Q 2 Q D Yen D D $ $2 Q of Yen Q 2 Q Q of $ Yen: appreciates depreciates Dollar: P 2
18 The U.S. price level increases. U.S. perspective: $ / Yen Market for Japanese Yen Market for $ Yen / $ P 2 P S Yen D Yen2 P P 2 S $ S $2 D Yen D $ Q Q 2 Q of Yen Q Q 2 Q of $ Yen: appreciates depreciates Dollar:
19 Japanese tourists flock to the U.S. $ / Yen P P 2 Market for Yen Market for $ S Yen D Yen Yen / $ P 2 P S $ D $ Q Q 2 Q of Yen Q Q 2 Q of $ Yen: depreciates appreciates Dollar:
20 Incomes fall in Europe due to recession. $ / Euros Market for Euros Market for $ Euros / $ S Euros S $ P 2 P P P 2 D Euros D $ Q 2 Q Q of Euros Q 2 Q Q of $ Euros: Appreciates depreciates Dollar:
21 If exchange rates are allowed to fluctuate freely and the U.S. demand for German marks increases, which of the following will most likely occur? a. Americans will have to pay more for goods made in Germany. b. Germans will find that American goods are getting more expensive. c. The U.S. balance of payments deficit will increase. d. The dollar price of marks will fall. e. The dollar price of German goods will fall.
22 If the dollar cost of the British pound decreases, U.S. imports from and exports to the U.K. will change in which of the following ways? Imports Increase Increase Increase Decrease Decrease Exports decrease increase no change decrease increase
23 Assume there is an increase in the U.S. demand for French goods. Explain how this increase in demand will affect each of the following (2000). Use an appropriately labeled foreign exchange graph to depict the change indicated. The supply of dollars The international value of the dollar
24 Assume that there is an increase in real interest rates in the U.S. but not in France. Explain how this increase in real interest rates will affect each of the following? Use an appropriately labeled foreign exchange market diagram to depict the change indicated. The international value of the dollar in foreign exchange markets The quantity of dollars supplied in foreign exchange markets.
25 Free Response Question Initially the real interest rates in the U.S. and Japan are equal to 7 percent. The real interest rate in the U.S. increases to 8 percent while the real interest rate in Japan decreases to 6 percent. A. How and why will capital flows be affected by this change in real interest rates? B. Using a correctly labeled graph for the yen market, show and explain how the value of the yen will change relative to the value of the dollar. C. Explain how the change in the value of the yen will affect each of the following in the U.S. i) imports from Japan ii) exports to Japan
26 Free Response Question Initially the real interest rates in the U.S. and Japan are equal to 7 percent. The real interest rate in the U.S. increases to 8 percent while the real interest rate in Japan decreases to 6 percent. A. How and why will capital flows be affected by this change in real interest rates? Capital inflows to the U.S. from Japan will increase as Japanese investors increase their purchases of U.S. interest bearing Securities (bonds) to receive a higher rate of return (higher interest rate). This will increase capital outflow from Japan. U.S. capital outflows will decrease as U.S. investors reduce their purchases of Japanese bonds due to the lower rate of return (lower interest rate).
27 Free Response Question Initially the real interest rates in the U.S. and Japan are equal to 7 percent. The real interest rate in the U.S. increases to 8 percent while the real interest rate in Japan decreases to 6 percent. B. Using a correctly labeled graph for the yen market, show and explain how the value of the yen will change relative to the value of the dollar. $/Yen P 1 P 2 Yen Market S Yen1 S Yen2 Q 1 Q 2 D Yen Q Yen D acceptable with different explanation As the supply of Yen increase in order to obtain Dollars to purchase U.S. bonds, the dollar price of the Yen will decrease, thus depreciating the Yen and appreciating the dollar.
28 Free Response Question Initially the real interest rates in the U.S. and Japan are equal to 7 percent. The real interest rate in the U.S. increases to 8 percent while the real interest rate in Japan decreases to 6 percent. C. Explain how the change in the value of the yen will affect each of the following in the U.S. i) imports from Japan ii) exports to Japan As the Yen depreciates relative to the dollar, Japanese goods will seem cheaper to U.S. consumers as they give up less for the Yen, thus increasing imports from Japan. A depreciated Yen relative to the dollar will make U.S. goods relatively more expensive to Japanese consumers (give up more Yen/dollar), thus U.S. exports to Japan will decrease.
29 Flows of money to purchase financial and physical assets (stocks, bonds, and real estate) What typically attracts capital flows to a country?
30 Exchange Rates Online Quiz Unit 3 on website record score on card provided Take notes with you --- not an easy quiz Complete for homework if you do not finish in class. Return to seats for discussion/notes on balance of payments and more board work.
31
32 Monday, April 27 Need big board, marker, cloth, pen and balance of payments and multiplier handouts and new handout today (class set) (calculator handy) See board for schedule of study sessions and tutorials (form your own study group and come in and go over released tests) Updated grade sheet --- Net Export and Exchange Rate quiz grades due no later than Wednesday (zero after Wednesday) AP Gov Test Next Monday morning. Please cover mouth when sneezing/coughing; anti-bacterial hand cleaner available, feel free to use wipes or spray Lysol to clean desks. Protect yourself from germs.
33 Flows of Money for Anything Between Nations Inpayments (credits) - payments flowing into a nation for goods, services, or real or financial investments (earn supplies of foreign currency reserves) Outpayments (debits) payments flowing out of a nation for goods, services, or real or financial investments in other nations (deplete supplies of foreign currency reserves)
34 The official record of all transactions made between a nation and all other nations in a year. It includes all inpayments ($ coming in) and outpayments ($ going out)
35 Balance of Payments Record of inflows and outflows of currency for a nation. Balance of Payments has three parts: Current account(goods, services, returns on previous investments, exchanges between governments.) Includes trade balance (?) on goods and services. Do inpayments of currency match outpayments for goods and services, etc. If not, is there a deficit or surplus? Capital account (flows of financial capital to make current purchases of securities, real estate, etc. Do impayments of currency match outpayments? If not, deficit or surplus? Official reserves: balancing factor Taken together, do the capital and current accounts balance? Overall, do outpayments of currency match inpayments of currency? If deficit occurs (outpayments > inpayments). U.S. reserves in central bank are depleted to make up difference as if an inpayment (inflow) If surplus occurs - (inpayments > outpayments) U.S. reserves in central bank are increased to make up difference as if an outpayment.(outflow) Inpayments EARN supplies of foreign currency; outpayments use up supplies of FC.
36 The U.S. Balance of Payments, 1999 (in billions) The U.S. Balance of Payments, 1999 (billions) Current Account 1 U.S. goods exports $ U.S. goods imports Balance of Trade U.S. exports of services U.S. imports of service Balance on Services Balance on goods and services Net investment income Net Transfers (private and public) Balance on Current Account -331 Capital Account 11 Foreign purchases of assets in the U.S. $ U.S. purchases of assets abroad Balance on capital account +322 Official Reserves Account deficit credit debit deficit 14 Official Reserves $ +9 $ 0
37 Balance of Payments quiz Unit minutes max Record score on sheets on front board
38 2008 FR #2 2. Balance of payments accounts record all of a country s international transactions during a year. (a) Two major subaccounts in the balance of payments accounts are the current account and the capital account. In which of these subaccounts will each of the following transactions be recorded? (i) A United States resident buys chocolate from Belgium. (ii) A United States manufacturer buys computer equipment from Japan.
39 2008 FR #2 2. Balance of payments accounts record all of a country s international transactions during a year. (b) How would an increase in the real income in the United States affect the United States current account balance? Explain. (c) Using a correctly labeled graph of the foreign exchange market for the United States dollar, show how an increase in United States firms direct investment in India will affect the value of the United States dollar relative to the Indian currency (the rupee). U.S. investment in India creates a demand for the rupee to make the investment in India, thus creating an in supply of the dollar. The supply of the dollar lowers the rupee price of the $ causing its value to fall (depreciate) while the rupee s value appreciates. 2C. Rupees/ $ 2b. An increase in real incomes will likely result in demand for domestic and foreign goods and services by U.S. consumers. An increase in imports of goods or services will lead to out-payments in the current account, thus moving the current account s balance on goods and services toward a deficit. P 1 P 2 Market for $ S $1 S $2 D $ Q 1 Q 2 Q$
40 Effects on Net Exports Inflation high in one country or PL increases. Interest rates Recession Foreign incomes
41 How does a change in real interest rates affect long run economic growth?
42 Incomes fall in Germany Cause-effect chain of reaction:
43
44 Interest rates rise in the U.S (The Net Export Effect)
45 Explain how each of the following will effect long-run aggregate supply (potential real GDP): A decrease in the labor force participation rate An increase in the government deficit following a reduction in personal income taxes A decrease in the quantity of inputs required to produce a unit of output An increase in the quantity and quality of education An increase in the rate of savings
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chatper 34 International Finance - Test Bank MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The currency used to buy imported goods is A) the
More informationCh. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A.
Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Currency and real assets. B. Services and manufactured goods. C.
More informationChapter 12. National Income Accounting and the Balance of Payments. Slides prepared by Thomas Bishop
Chapter 12 National Income Accounting and the Balance of Payments Slides prepared by Thomas Bishop Preview National income accounts measures of national income measures of value of production measures
More informationDefinitions and terminology
Exchange rates are a confusing concept despite the fact that we have to deal with exchange rates whenever we travel abroad. The handout will tackle the common misconceptions with exchange rates and simplify
More informationEcon 202 Final Exam. Table 3-1 Labor Hours Needed to Make 1 Pound of: Meat Potatoes Farmer 8 2 Rancher 4 5
Econ 202 Final Exam 1. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher. b. left, so that at any inflation rate unemployment
More informationAP Macroeconomics 2008 Scoring Guidelines Form B
AP Macroeconomics 2008 Scoring Guidelines Form B The College Board: Connecting Students to College Success The College Board is a not-for-profit membership association whose mission is to connect students
More informationD) surplus; negative. 9. The law of one price is enforced by: A) governments. B) producers. C) consumers. D) arbitrageurs.
1. An open economy is one in which: A) the level of output is fixed. B) government spending exceeds revenues. C) the national interest rate equals the world interest rate. D) there is trade in goods and
More informationChapter 14 Foreign Exchange Markets and Exchange Rates
Chapter 14 Foreign Exchange Markets and Exchange Rates International transactions have one common element that distinguishes them from domestic transactions: one of the participants must deal in a foreign
More informationEcon 202 H01 Final Exam Spring 2005
Econ202Final Spring 2005 1 Econ 202 H01 Final Exam Spring 2005 1. Which of the following tends to reduce the size of a shift in aggregate demand? a. the multiplier effect b. the crowding-out effect c.
More informationRefer to Figure 17-1
Chapter 17 1. Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change
More informationEconomics 380: International Economics Fall 2000 Exam #2 100 Points
Economics 380: International Economics Fall 2000 Exam #2 100 Points Name (ID) YOU SHOULD HAVE 7 PAGES FOR THIS EXAM. EXAM WILL END AT 1:50. MAKE SURE YOUR NAME IS ON THE FIRST AND LAST PAGE OF THE EXAM.
More informationChapter 11. International Economics II: International Finance
Chapter 11 International Economics II: International Finance The other major branch of international economics is international monetary economics, also known as international finance. Issues in international
More informationEconomics 152 Solution to Sample Midterm 2
Economics 152 Solution to Sample Midterm 2 N. Das PART 1 (84 POINTS): Answer the following 28 multiple choice questions on the scan sheet. Each question is worth 3 points. 1. If Congress passes legislation
More informationMacroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments
Macroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments 1 The Foreign Exchange Market 1) The term "foreign currency" refers to foreign I. coins II. notes III.
More informationUniversity of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi
University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 25 Exch Rate & BofP 1) Foreign currency is A) the market for foreign exchange.
More information14.02 PRINCIPLES OF MACROECONOMICS QUIZ 3
14.02 PRINCIPLES OF MACROECONOMICS QUIZ 3 READ INSTRUCTIONS FIRST: Read all questions carefully and completely before beginning the quiz. Label all of your graphs, including axes, clearly; if we can t
More informationCHAPTER 16 EXCHANGE-RATE SYSTEMS
CHAPTER 16 EXCHANGE-RATE SYSTEMS MULTIPLE-CHOICE QUESTIONS 1. The exchange-rate system that best characterizes the present international monetary arrangement used by industrialized countries is: a. Freely
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Study Questions 6 (Foreign Exchange Markets) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The currency used to buy imported goods is 1) A) the
More informationCHAPTER 32 EXCHANGE RATES, BALANCE OF PAYMENTS, AND INTERNATIONAL DEBT
CHAPTER 32 EXCHANGE RATES, BALANCE OF PAYMENTS, AND INTERNATIONAL DEBT Chapter in a Nutshell Along with the flows of goods and services being traded between countries, there are corresponding flows of
More informationEconomics 212 Principles of Macroeconomics Study Guide. David L. Kelly
Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current
More informationFLEXIBLE EXCHANGE RATES
FLEXIBLE EXCHANGE RATES Along with globalization has come a high degree of interdependence. Central to this is a flexible exchange rate system, where exchange rates are determined each business day by
More informationAP Macroeconomics 2012 Scoring Guidelines
AP Macroeconomics 2012 Scoring Guidelines The College Board The College Board is a mission-driven not-for-profit organization that connects students to college success and opportunity. Founded in 1900,
More informationFinance, Saving, and Investment
23 Finance, Saving, and Investment Learning Objectives The flows of funds through financial markets and the financial institutions Borrowing and lending decisions in financial markets Effects of government
More informationFISCAL POLICY* Chapter. Key Concepts
Chapter 11 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic
More informationAssignment 10 (Chapter 11)
Assignment 10 (Chapter 11) 1. Which of the following tends to cause the U.S. dollar to appreciate in value? a) An increase in U.S. prices above foreign prices b) Rapid economic growth in foreign countries
More informationStatement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net)
Statement by Dean Baker, Co-Director of the Center for Economic and Policy Research (www.cepr.net) Before the U.S.-China Economic and Security Review Commission, hearing on China and the Future of Globalization.
More informationIf the nominal exchange rate goes from 100 to 120 yen per dollar, the dollar has appreciated because a dollar now buys more yen.
SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Net exports are the value of a nation s exports minus the value of its imports, also called the trade balance. Net capital outflow is the purchase of foreign
More informationMGE#12 The Balance of Payments
MGE#12 The Balance of Payments The Current Account, the Capital Account and the Balance of Payments Introduction to the Foreign Exchange Market Savings, Investment and the Current Account 1 From last session
More informationOxford University Business Economics Programme
The Open Economy Gavin Cameron Tuesday 10 July 2001 Oxford University Business Economics Programme the exchange rate The nominal exchange rate is simply the price of one currency in terms of another pounds
More informationPart A: Use the income identities to find what U.S. private business investment, I, was in 2004. Show your work.
Exercise 1 Due: Preliminary figures (in billions of dollars) for 2004 taken from the 2005 Economic Report of the President showed that: Y = 11,728.0, C = 8,231.1, EX = 1,170.2, IM = 1,779.6, G = 2,183.8
More informationBig Concepts. Balance of Payments Accounts. Financing International Trade. Economics 202 Principles Of Macroeconomics. Lecture 12
Economics 202 Principles Of Macroeconomics Professor Yamin Ahmad Big Concepts Balance of Payments Equilibrium The relationship between the current account, capital account and official settlements balance
More informationProfessor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016
Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 I. MACROECONOMICS VERSUS MICROECONOMICS II. REAL GDP A. Definition B.
More informationCHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY
CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How
More informationName: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.
Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a
More informationAgenda. Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy, Part 1. Exchange Rates. Exchange Rates.
Agenda, Business Cycles, and Macroeconomic Policy in the Open Economy, Part 1 How Are Determined A Supply-and-Demand Analysis 19-1 19-2 Nominal exchange rates: The nominal exchange rate indicates how much
More information3. a. If all money is held as currency, then the money supply is equal to the monetary base. The money supply will be $1,000.
Macroeconomics ECON 2204 Prof. Murphy Problem Set 2 Answers Chapter 4 #2, 3, 4, 5, 6, 7, and 9 (on pages 102-103) 2. a. When the Fed buys bonds, the dollars that it pays to the public for the bonds increase
More information1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand for money.
Macroeconomics ECON 2204 Prof. Murphy Problem Set 4 Answers Chapter 10 #1, 2, and 3 (on pages 308-309) 1. a. Interest-bearing checking accounts make holding money more attractive. This increases the demand
More informationCosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected
Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Fall 2015 Prof. Dowell Instructions: This problem set will not be collected. You should still work
More informationExam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.
Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high
More informationChapter 13. Aggregate Demand and Aggregate Supply Analysis
Chapter 13. Aggregate Demand and Aggregate Supply Analysis Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics In the short run, real GDP and
More informationFinance 581: Arbitrage and Purchasing Power Parity Conditions Module 5: Lecture 1 [Speaker: Sheen Liu] [On Screen]
Finance 581: Arbitrage and Purchasing Power Parity Conditions Module 5: Lecture 1 [Speaker: Sheen Liu] MODULE 5 Arbitrage and Purchasing Power Parity Conditions [Sheen Liu]: Managers of multinational firms,
More informationANSWERS TO END-OF-CHAPTER QUESTIONS
ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 In what ways are national income statistics useful? National income accounting does for the economy as a whole what private accounting does for businesses. Firms
More informationa) Aggregate Demand (AD) and Aggregate Supply (AS) analysis
a) Aggregate Demand (AD) and Aggregate Supply (AS) analysis Determinants of AD: Aggregate demand is the total demand in the economy. It measures spending on goods and services by consumers, firms, the
More informationWhat is Macroeconomics?
MACRO ECONOMICS 1 What is Macroeconomics? Macroeconomics is the study of the large economy as a whole. It is the study of the big picture. Instead of analyzing one consumer, we analyze everyone. Instead
More informationLECTURE NOTES ON MACROECONOMIC PRINCIPLES
LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution
More informationInternational Economic Relations
nternational conomic Relations Prof. Murphy Chapter 12 Krugman and Obstfeld 2. quation 2 can be written as CA = (S p ) + (T G). Higher U.S. barriers to imports may have little or no impact upon private
More informationEcon 202 Section 4 Final Exam
Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys $40
More informationChapter 4 Determinants of FX Rates
Rauli Susmel Dept. of Finance Univ. of Houston FINA 4360 International Financial Management Chapter 4 Determinants of FX Rates Last Lecture FX is a huge market (the biggest financial market) - Open 24/7-3
More informationEcon 336 - Spring 2007 Homework 5
Econ 336 - Spring 2007 Homework 5 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The real exchange rate, q, is defined as A) E times P B)
More informationChapter Outline. Chapter 13. Exchange Rates. Exchange Rates
Chapter 13, Business Cycles, and Macroeconomic Policy in the Open Economy Chapter Outline How Are Determined: A Supply-and-Demand Analysis The IS-LM Model for an Open Economy Macroeconomic Policy in an
More information1 Multiple Choice - 50 Points
Econ 201 Final Winter 2008 SOLUTIONS 1 Multiple Choice - 50 Points (In this section each question is worth 1 point) 1. Suppose a waiter deposits his cash tips into his savings account. As a result of only
More informationI. Introduction to Aggregate Demand/Aggregate Supply Model
University of California-Davis Economics 1B-Intro to Macro Handout 8 TA: Jason Lee Email: jawlee@ucdavis.edu I. Introduction to Aggregate Demand/Aggregate Supply Model In this chapter we develop a model
More informationAgenda. Saving and Investment in the Open Economy. Balance of Payments Accounts. Balance of Payments Accounting. Balance of Payments Accounting.
Agenda. Saving and Investment in the Open Economy Goods Market Equilibrium in an Open Economy. Saving and Investment in a Small Open Economy. Saving and Investment in a Large Open Economy. 7-1 7-2 Balance
More informationThis chapter seeks to explain the factors that underlie currency movements. These factors include market fundamentals and market expectations.
EXCHANGE-RATE DETERMINATION LECTURE NOTES & EXERCISES based on Carbaugh Chapter 13 CHAPTER OVERVIEW This chapter seeks to explain the factors that underlie currency movements. These factors include market
More informationBusiness Conditions Analysis Prof. Yamin Ahmad ECON 736
Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Sample Final Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the answers
More informationGOVERNMENT ECONOMIC OBJECTIVES AND POLICIES. Textbook, Chapter 26 [pg 317-328]
GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES Textbook, Chapter 26 [pg 317-328] Name: Class: Learning outcomes: Identify government economic objectives. Explain the main stages of the business cycle. Explain
More informationCHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE
CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER OVERVIEW This chapter discusses the nature and operation of the foreign exchange market. The chapter begins by describing the foreign exchange market and
More informationDeterminants of FX Rates: Chapter 2. Chapter Objectives & Lecture Notes FINA 5500
Determinants of FX Rates: Chapter 2 Chapter Objectives & Lecture Notes FINA 5500 Chapter Objectives: FINA 5500 Chapter 2 / Determinants of Exchange Rates 1. To be able to explain in your own words why
More informationLearning Objectives. Chapter 17. Trading Currencies in Foreign Exchange Markets. Trading Currencies in Foreign Exchange Markets (cont.
Chapter 17 Financing World Trade Learning Objectives Explain how foreign exchange rates are determined. Differentiate between floating and fixed exchange rate systems. Contrast the balance of trade and
More informationCHAPTER 7 SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS
INSTRUCTOR S MANUAL: MULTINATIONAL FINANCIAL MANAGEMENT, 9 TH ED. CHAPTER 7 SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS 1. Answer the following questions based on data in Exhibit 7.5. a. How many Swiss francs
More information2.5 Monetary policy: Interest rates
2.5 Monetary policy: Interest rates Learning Outcomes Describe the role of central banks as regulators of commercial banks and bankers to governments. Explain that central banks are usually made responsible
More informationEcon 202 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam.
, Fall 2007 Version A Special Codes 00000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. On average over the past 50 years, the U.S.
More information2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E. The College Board. College Level Examination Program
2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E College Level Examination Program The College Board Principles of Macroeconomics Description of the Examination The Subject Examination in
More informationEC2105, Professor Laury EXAM 2, FORM A (3/13/02)
EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each
More informationNational Income Accounting and the Balance of Payments
National Income Accounting and the Balance of Payments Graciela L. Kaminsky Department of Economics George Washington University Lecture Notes 1 Questions The US current account deficit is about 7 percent
More informationAssessment Schedule 2014 Economics: Demonstrate understanding of macro-economic influences on the New Zealand economy (91403)
NCEA Level 3 Economics (91403) 2014 page 1 of 10 Assessment Schedule 2014 Economics: Demonstrate understanding of macro-economic influences on the New Zealand economy (91403) Assessment criteria with Merit
More informationBusinesses are affected by the economy An economy describes how a country spends its money This is determined by 5 factors
Economic Factors Businesses are affected by the economy An economy describes how a country spends its money This is determined by 5 factors Economic Growth Exchange Rates Rates Economic Factors Inflation
More informationASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2. DUE DATE : 3:00 p.m.
Page 1 of 13 ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2 DUE DATE : 3:00 p.m. 19 MARCH 2013 TOTAL MARKS : 100 INSTRUCTIONS TO CANDIDATES
More informationCHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH
CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate
More informationPractice Problems on Current Account
Practice Problems on Current Account 1- List de categories of credit items and debit items that appear in a country s current account. What is the current account balance? What is the relationship between
More informationChapter 2: The balance of payments and the foreign exchange market
Chapter 2: The balance of payments and the foreign exchange market 1- Exchange rates and international transactions Currency Overview Asia 10:46 a.m. EDT 03/22/11 Last (bid) Prior Day Australian Dollar
More informationChapter 3.1. Capital and Trade Flow Drive Currency Values
Chapter 3.1 Capital and Trade Flow Drive Currency Values 0 CAPITAL AND TRADE FLOW DRIVE CURRENCY VALUES Supply and demand are the simple concepts behind all price movement in the forex market, and no two
More informationLecture 10: Open Economy & Crises
Lecture 10: Open Economy & Crises Today Open Economy Macroeconomics Key Readings Mishkin, Cht 24, Leddin/Walsh Cht 18. Learning Outcomes Theory. Extend ISLM to account for Imports/Exports Practice. Show
More informationSolutions: Sample Exam 2: FINA 5500
Short Questions / Problems Section: (88 points) Solutions: Sample Exam 2: INA 5500 Q1. (8 points) The following are direct quotes from the spot and forward markets for pounds, yens and francs, for two
More informationCHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS
CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS MULTIPLE-CHOICE QUESTIONS 1. According to the absorption approach, the economic circumstances that best warrant a currency devaluation is
More informationAGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand
AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand Suppose that the economy is undergoing a recession because of a fall in aggregate demand. a. Using
More informationChapter 2 The Measurement and Structure of the National Economy
Chapter 2 The Measurement and Structure of the National Economy Multiple Choice Questions 1. The three approaches to measuring economic activity are the (a) cost, income, and expenditure approaches. (b)
More informationEcon 102 Aggregate Supply and Demand
Econ 102 ggregate Supply and Demand 1. s on previous homework assignments, turn in a news article together with your summary and explanation of why it is relevant to this week s topic, ggregate Supply
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Econ 111 Summer 2007 Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The classical dichotomy allows us to explore economic growth
More informationThank You for Attention
Thank You for Attention Explain how the foreign exchange market works. Examine the forces that determine exchange rates. Consider whether it is possible to predict future rates movements. Map the business
More informationAssignment 3 Answer Key (Maximum Points: 100) Multiple-Choice Questions Each question is worth 3 points. Explanation is not required.
Econ 4401 International Economics University of Minnesota Deniz Cicek Fall 2009 Assignment 3 Answer Key (Maximum Points: 100) Multiple-Choice Questions Each question is worth 3 points. Explanation is not
More information7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts
Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),
More informationExchange Rates: Application of Supply and Demand
Exchange Rates: Application of Supply and Demand ECO 120: Global Macroeconomics 1 1.1 Goals Goals ˆ Specific goals: Learn how interpret exchange rates. Learn how to use supply and demand to interpret exchange
More informationFinancial Mathematics
Financial Mathematics For the next few weeks we will study the mathematics of finance. Apart from basic arithmetic, financial mathematics is probably the most practical math you will learn. practical in
More informationForward exchange rates
Forward exchange rates The forex market consists of two distinct markets - the spot foreign exchange market (in which currencies are bought and sold for delivery within two working days) and the forward
More informationCHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS
CHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Define the balance of payments. Answer: The balance of payments (BOP) can be defined
More informationSAMPLE PAPER II ECONOMICS Class - XII BLUE PRINT
SAMPLE PAPER II ECONOMICS Class - XII Maximum Marks 100 Time : 3 hrs. BLUE PRINT Sl. No. Form of Very Short Short Answer Long Answer Total Questions (1 Mark) (3, 4 Marks) (6 Marks) Content Unit 1 Unit
More informationchanges in spending changes in income/output AE = Aggregate Expenditures = C + I + G + Xn = AD
small larger changes in spending changes in income/output AE = Aggregate Expenditures = C + I + G + Xn = AD The Multiplier Effect A small change in spending gives rise to a larger change in income/output
More informationEcon 202 Final Exam. Douglas, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam.
, Spring 2006 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam 1. When the government spends more, the initial effect is that a. aggregate
More informationAP Macroeconomics 2011 Scoring Guidelines
AP Macroeconomics 2011 Scoring Guidelines The College Board The College Board is a not-for-profit membership association whose mission is to connect students to college success and opportunity. Founded
More informationIII. INTERNATIONAL TRADE
III. INTERNATIONAL TRADE A. Gains from Trade -- a history of thought approach 1. The idea of mercantilism (15-175) argued that a country s well-being is directly tied to the accumulation of gold and silver.
More informationLecture 2. Output, interest rates and exchange rates: the Mundell Fleming model.
Lecture 2. Output, interest rates and exchange rates: the Mundell Fleming model. Carlos Llano (P) & Nuria Gallego (TA) References: these slides have been developed based on the ones provided by Beatriz
More information(b) (i) How much is to be paid as a deposit under this option? (1) Find the cost of the loan under Friendly Credit Terms.
1. Angela needs $4000 to pay for a car. She was given two options by the car seller. Option A: Outright Loan A loan of $4000 at a rate of 12% per annum compounded monthly. Find (i) (ii) the cost of this
More informationA HOW-TO GUIDE: UNDERSTANDING AND MEASURING INFLATION
A HOW-TO GUIDE: UNDERSTANDING AND MEASURING INFLATION By Jim Stanford Canadian Centre for Policy Alternatives, 2008 Non-commercial use and reproduction, with appropriate citation, is authorized. This guide
More informationAN INTRODUCTION TO TRADING CURRENCIES
The ins and outs of trading currencies AN INTRODUCTION TO TRADING CURRENCIES A FOREX.com educational guide K$ $ kr HK$ $ FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited is a member
More informationWith lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy.
The Digital Economist Lecture 9 -- Economic Policy With lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy. There is still great debate about
More informationHow To Get A Better Return From International Bonds
International fixed income: The investment case Why international fixed income? International bonds currently make up the largest segment of the securities market Ever-increasing globalization and access
More informationFOREIGN EXCHANGE AND CURRENCY
Exchange rates represent the linkage between one country and its partners in the global economy. They affect the relative price of goods being traded (exports and imports), the valuation of assets, and
More information