All Flashcards
How does increased demand for US exports affect the dollar?
It increases the demand for dollars, causing the dollar to appreciate.
How does increased US demand for European goods affect the dollar?
It increases the supply of dollars, causing the dollar to depreciate.
How do higher U.S. interest rates affect the demand for dollars?
They increase the demand for dollars as U.S. assets become more attractive to foreign investors.
How does expansionary monetary policy affect the exchange rate?
It lowers interest rates, decreasing demand for the dollar and causing it to depreciate.
How does contractionary monetary policy affect the exchange rate?
It raises interest rates, increasing demand for the dollar and causing it to appreciate.
If the dollar appreciates, what happens to U.S. exports?
U.S. exports become more expensive for foreigners, so they likely decrease.
If the dollar depreciates, what happens to U.S. imports?
U.S. imports become more expensive for Americans, so they likely decrease.
How does increased foreign income affect the demand for US goods?
It increases the demand for US goods, leading to increased demand for US dollars and dollar appreciation.
How does a decrease in the U.S. price level affect the dollar?
It makes U.S. goods cheaper, increasing demand for dollars and causing the dollar to appreciate.
How does speculation that a currency will rise affect its value?
It increases demand for the currency, causing it to appreciate.
What is the difference between currency appreciation and depreciation?
Appreciation is an increase in value, while depreciation is a decrease in value.
Differentiate between nominal and real exchange rates.
Nominal is the rate at which currencies are traded. Real adjusts for price level differences.
What is the difference between capital investment and financial investment?
Capital investment is spending on physical assets; financial investment is buying financial assets.
Compare the effects of increased demand for exports vs. increased demand for imports on a country's currency.
Increased export demand appreciates the currency; increased import demand depreciates it.
Compare expansionary and contractionary monetary policy effects on interest rates.
Expansionary policy lowers interest rates; contractionary policy raises them.
Compare the effects of higher domestic vs. higher foreign interest rates on a country's currency.
Higher domestic rates appreciate the currency; higher foreign rates depreciate it.
What is the difference between a floating and a fixed exchange rate?
Floating rates are determined by market forces; fixed rates are set by the government.
Compare the impact of a tariff and a quota on imports.
Tariffs generate revenue for the government, while quotas do not.
Compare the short-run and long-run effects of expansionary monetary policy on the exchange rate.
Short-run depreciation, long-run potential appreciation due to inflation.
Contrast the effects of an increase in demand for a country's goods with an increase in its money supply on the exchange rate.
Increased demand appreciates the currency; increased money supply depreciates it.
What is the impact of expansionary monetary policy on net exports?
It causes the currency to depreciate, increasing net exports.
What is the impact of contractionary monetary policy on net exports?
It causes the currency to appreciate, decreasing net exports.
How does a decrease in interest rates affect capital flows?
It leads to capital flight, as investors seek higher returns elsewhere.
How does an increase in interest rates affect capital flows?
It attracts capital inflows, as investors seek higher returns.
What is the effect of a tariff on the exchange rate?
Tariffs can increase demand for domestic currency, leading to appreciation.
How does government intervention in the FOREX market affect exchange rates?
It can stabilize exchange rates or manipulate them to achieve policy goals.
What is the impact of a quota on the exchange rate?
Quotas can increase demand for domestic currency, leading to appreciation.
How does a central bank buying its own currency affect the exchange rate?
It increases demand for the currency, causing it to appreciate.
How does a central bank selling its own currency affect the exchange rate?
It increases the supply of the currency, causing it to depreciate.
What is the effect of a subsidy on exports on the exchange rate?
Subsidies can increase supply for foreign currency, leading to depreciation of domestic currency.