Menu_01_May_06

Menu_01_May_06 - d D for $ by whom Europeans seeking U.S $...

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TODAY’S MENU: Monday 01 May 2006 I. BUSINESS A. Practice Problems 1. Chapter 17: 1, 2, 5, 6**** B. Final exam: Thursday 11 MAY 7:30-9:30 AM in LOCKETT 2 II. SUBSTANCE A. Exchange Rates: The basics 1. Relationship between exchange rate and import/export prices a. If a country’s currency appreciates. .. i. Exports become more expensive. ii. Imports become cheaper. b. If a country’s currency depreciates. .. i. Exports become cheaper. ii. Imports become more expensive. c. Example B. Nominal exchange rate determination: Flexible rates 1. Foreign exchange market: modified supply and demand a. Assume: market for U.S. dollars 2. Modifications a. Q of what? U.S. dollars traded/exchanged. b. P of what? U.S. dollar: € per $. c. S of $ by whom? Americans seeking €.
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Unformatted text preview: d. D for $ by whom? Europeans seeking U.S. $. 3. Demand for dollars by Europeans: Determinants a. Slope (-): Why? Big relationship b. Shifts i. Tastes/preferences for U.S. exports (+) ii. Change in European y (+) iii. Expected change in U.S. nominal interest rates (+) iv. Expected change in U.S. inflation rate (-) 4. Supply of dollars by Americans: Determinants a. Slope (+): Why? Big relationship b. Shifts i. Tastes/preferences for European exports (+) ii. Change in U.S. y (+) iii. Expected change in European nominal interest rates (+) iv. Expected change in European inflation rate (-) III: NEXT TIME A. Finish Chapter 17: “Exchange Rates and the Open Economy”...
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