All Flashcards
Define currency appreciation.
A currency becomes more valuable relative to another currency.
Define currency depreciation.
A currency becomes less valuable relative to another currency.
What is expansionary fiscal policy?
Government increases spending or cuts taxes to increase aggregate demand.
What is contractionary fiscal policy?
Government decreases spending or raises taxes to decrease aggregate demand.
What is expansionary monetary policy?
Central bank increases the money supply to lower interest rates and increase aggregate demand.
What is contractionary monetary policy?
Central bank decreases the money supply to raise interest rates and decrease aggregate demand.
Define a tariff.
A tax on imported goods.
What is a revenue tariff?
A tax on goods not produced domestically, primarily for raising government revenue.
What is a protective tariff?
A tax on goods also produced domestically, designed to protect domestic jobs.
Define an import quota.
A limit on the quantity of a good that can be imported.
How does increased tourism to a country affect its currency?
Increases demand for the currency, causing it to appreciate.
How do rising export prices affect a country's currency?
Decreases demand for the currency, causing it to depreciate.
How do higher relative interest rates affect a country's currency?
Increases demand for the currency, causing it to appreciate.
How does expansionary fiscal policy affect a country's currency value?
It tends to depreciate the currency due to rising prices and increased imports.
How does contractionary fiscal policy affect a country's currency value?
It tends to appreciate the currency due to falling prices and decreased imports.
How does expansionary monetary policy affect a country's currency value?
It tends to depreciate the currency due to lower interest rates and rising prices.
How does contractionary monetary policy affect a country's currency value?
It tends to appreciate the currency due to higher interest rates and falling prices.
How does a tariff on imported goods affect domestic prices?
Tariffs increase domestic prices for consumers.
How does an import quota affect the quantity of imports?
Quotas decrease the quantity of imports.
How does increased domestic income affect the supply of a country's currency?
Increases the supply of its currency on the market as citizens import more.
What is the key difference between fiscal and monetary policy?
Fiscal policy involves government spending and taxes, while monetary policy involves the money supply and interest rates.
How do tariffs and quotas differ in terms of government revenue?
Tariffs generate government revenue, while quotas do not.
What is the difference between revenue and protective tariffs?
Revenue tariffs are on goods not produced domestically, while protective tariffs are on goods also produced domestically.
What is the difference between currency appreciation and depreciation?
Appreciation means a currency becomes more valuable; depreciation means it becomes less valuable.
Compare the effects of expansionary fiscal policy and expansionary monetary policy on currency value.
Both tend to depreciate the currency, but fiscal policy does so through price increases, while monetary policy does so through lower interest rates.
Compare the effects of contractionary fiscal policy and contractionary monetary policy on currency value.
Both tend to appreciate the currency, but fiscal policy does so through price decreases, while monetary policy does so through higher interest rates.
Compare the effects of tariffs and quotas on domestic producers.
Both tariffs and quotas protect domestic producers by raising prices and decreasing imports.
Compare the effects of tariffs and quotas on consumers.
Both tariffs and quotas harm consumers by raising prices and reducing the quantity of goods available.
How do changes in tastes/preferences and relative incomes affect the FOREX market?
Changes in tastes affect demand for a currency; changes in relative incomes affect the supply of a currency.
How do changes in relative price levels and relative interest rates affect the FOREX market?
Changes in price levels affect demand for a currency; changes in interest rates affect demand for a currency.