420 review session 10.10.2007

420 review session 10.10.2007 - 100 greg hall Plaza...

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100 greg hall Plaza agreement (example) – what was it all about. . why did it come about. .jointly devalue dollar. . what led up to it…inflow of capital. .from budget deficit… Price effect of devaluation Price of imports increase Results in inflation Undoes effect of devaluation Income effect – Y = C + I + X – M At first you import less, then you begin to use income to import which counter acts the devaluation If MPimport is greater then 1 then as Y increases they import more Foreign Trade Multiplier – 1/MPS + MPimport Domestic – 1 / MPS Greater MPS and MPC effects the multiplier Multipliers are used to determine how much investment (government ) is needed to bring revenue to economy. MPimport is leakage because government must invest more to reach same results Gold Standard – example of fixed exchange rate – because each country fixes its value in terms of gold. . and guarantees convertibility between currency and gold. With price deflation. .and all domestic prices go down. . they will be more
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420 review session 10.10.2007 - 100 greg hall Plaza...

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