Lesson_56_Changes in Supply and Demand

Lesson_56_Changes in Supply and Demand - Changes in Supply...

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1 Lesson 56 1 Changes in Supply and Demand What causes U.S. goods, services, and assets to become more or less attractive relative to foreign goods, services, and assets? This lesson provides an overview of factors that influence supply and demand in the long run and short run Lesson 56 2 Start with long run As economy grows, more goods and services are demanded, both domestically- produced and foreign Suppose U.S. GDP increases Increases demand for foreign goods and services Drives up the cost of foreign currency Dollar depreciates Lesson 56 3 Reverse is true of growth in foreign income e.g., as China grows, increased demand for American goods and services translates into increased demand for dollars Chinese growth causes dollar to appreciate
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Lesson 56 4 FC/$ Q $ D $ S $ Growth in U.S. economy increases supply of dollars to FX market Lesson 56 5 FC/$ Q $ D $ S $ Growth in foreign economy increases demand for dollars Lesson 56 6 What about overall changes in the price level? Suppose the dollar prices of American
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Lesson_56_Changes in Supply and Demand - Changes in Supply...

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