What is the impact of expansionary monetary policy on exchange rates?
Expansionary monetary policy (increasing the money supply) typically leads to currency depreciation.
What is the impact of contractionary monetary policy on exchange rates?
Contractionary monetary policy (decreasing the money supply) typically leads to currency appreciation.
How can fiscal policies influence exchange rates?
Fiscal policies (government spending and taxation) can influence exchange rates depending on their effects on interest rates and inflation.
What is the effect of a tariff on net exports?
A tariff typically leads to a decrease in imports and an increase in net exports, but can also lead to retaliation.
How does a quota affect the domestic price of imported goods?
A quota typically increases the domestic price of imported goods.
What is the impact of a subsidy on exports?
A subsidy on exports increases exports, leading to an increase in domestic production.
How does a decrease in government spending affect aggregate demand?
A decrease in government spending decreases aggregate demand, potentially leading to lower GDP.
What is the impact of increased taxes on consumer spending?
Increased taxes decrease disposable income, leading to a decrease in consumer spending.
How does an increase in interest rates affect investment?
An increase in interest rates increases the cost of borrowing, leading to a decrease in investment.
What is the impact of a currency depreciation on a country's trade balance?
A currency depreciation makes exports cheaper and imports more expensive, improving the trade balance in the long run.
How does increased tourism affect the FOREX market?
Increased tourism increases demand for a country's currency, leading to appreciation.
How do higher incomes affect the FOREX market?
Higher incomes can lead to increased demand for imports and foreign currency, potentially causing depreciation.
How does higher inflation affect a country's currency?
Higher inflation can decrease demand for a country's currency, leading to depreciation.
How do higher interest rates affect capital flows?
Higher interest rates attract financial capital, increasing demand for a country's currency and causing appreciation.
How does a weaker currency affect GDP?
A weaker currency (depreciation) can lead to increased exports, boosting GDP.
How does a stronger currency affect GDP?
A stronger currency (appreciation) can lead to decreased exports, lowering GDP.
How do differences in real interest rates affect capital flows?
Differences in real interest rates drive capital flows. Higher rates attract financial capital.
If a country has a current account deficit, what must be true about its capital account?
The country must have a capital account surplus.
How does increased government spending affect exchange rates?
Increased government spending (fiscal policy) can influence exchange rates depending on its effects on interest rates and inflation.
How do central bank actions affect exchange rates?
Central bank actions like interest rate adjustments (monetary policy) affect exchange rates by influencing capital flows.
In a FOREX graph, what is on the X-axis?
Quantity of one currency.
In a FOREX graph, what is on the Y-axis?
Price of one currency in terms of another (e.g., Euros per Dollar).
What is the shape of the supply curve in a FOREX graph?
Upward sloping.
What is the shape of the demand curve in a FOREX graph?
Downward sloping.
What does the equilibrium point represent in a FOREX graph?
Where supply and demand intersect, representing the market exchange rate.
How does an increase in demand for a currency shift the demand curve?
It shifts the demand curve to the right.
How does an increase in the supply of a currency shift the supply curve?
It shifts the supply curve to the right.
What does a rightward shift of the demand curve in the FOREX market indicate?
It indicates an increase in the demand for that currency, leading to appreciation.
What does a rightward shift of the supply curve in the FOREX market indicate?
It indicates an increase in the supply of that currency, leading to depreciation.
How would you represent the effect of increased US interest rates on a FOREX graph for the Euro?
The demand curve for the dollar would shift right, and the supply curve for the euro would shift right. The dollar appreciates, and the euro depreciates.
