strong vs weak dollar - Policy Paper#1 Chapter 12 Anthony...

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Anthony Milne Policy Paper#1 Chapter 12 PSCI 3143 When considering whether the United States should pursue a strong or weak dollar, it is important to consider that either of these positions has both benefits and negative consequences. Using the sectoral model as a guide, one finds that in the case of the level of exchange rates, a conflict occurs between domestic actors, with the interest groups of export-oriented and import-competing sectors on one side and the non-traded goods sector on the other. But at the same time, the financial services sector may best represent the entire economy in that it has interests on both sides of the spectrum with both a weak and strong dollar. When considering the U.S. economy as a whole, the best way to decide whether a country should pursue policies to promote a strong dollar or a weak dollar is to compare the resulting positives and negatives of each situation. Although its effectiveness may be questioned, currently, U.S. policy is in favor of a strong dollar under the Bush administration. The reasoning for this position has been that a strong U.S. dollar will encourage foreign investment and reflects the strength of the economy. Although this type of reasoning may be justified in some sense, it is better to look at the more identifiable effects of such policy position. First off, having a strong dollar increases the income of the non-traded goods sector compared to that of foreign markets. Therefore consumers see lower prices on foreign products and services and are able to buy more foreign goods than if the dollar was weak. Also, U.S. consumers benefit
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