Final Readings Notes

Final Readings Notes - Chapter 6 - Trade deficits raise...

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Chapter 6 - Trade deficits raise national welfare in the period they occur - Trade surpluses lower national welfare in the period they occur - Trade deficits, even if large or persistent, will not cause long term harm to a nation’s average standard of living, IF the country grows rapidly enough Chapter 80 - adjustment under a gold standard involves the flow of gold between countries resulting in equalization of prices satisfying purchasing power parity (PPP), and/or equalization of rates of return on assets satisfying interest rate parity (IRP) at the current fixed exchange rate - Bimetallic standard o Currency standard using both gold and silver - Price-specie flow mechanism o Process describing functioning of gold standard - Reserve Currency o Countries fix to one standard currency, currency is fixed to gold - Basket of Currencies o Countries fix to one currency, currency not fixed to anything - Gold-Exchange Standard o Used in post WW2 era - International Monetary Fund (IMF) o Organization created after WW2 to oversee fixed exchange rate system - Dollarization o Currency fixing by adopting US dollar as one’s currency - Interest rates o Must be equal for interest rate parity to hold under fixed exchange rates - Official Reserve Transactions o Account used to record central bank transactions - Balance of payments deficit o Balance when central bank sells foreign reserves Chapter 30 - Value of a dollar o Tourist Example
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Overvalued Goods seem cheap Can buy more in Mexico Undervalued Goods seem expensive Can buy less in Mexico
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This note was uploaded on 04/03/2008 for the course ECON 300 taught by Professor Gang during the Fall '06 term at Rutgers.

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Final Readings Notes - Chapter 6 - Trade deficits raise...

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