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Banking and Monetary Policy_Butkiewicz_Date__031610

Banking and Monetary Policy_Butkiewicz_Date__031610 -...

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Chapter 6 continued 28: if want to buy foreign import, “trade” (don’t see it happen) U.S. dollar for foreign currency to get the good - Capital outflow= using our funds to buy foreign goods 29: NX- can have a positive or negative value (currently negative in the U.S.—account deficit) 30: trade surplus- sell more than buy (lending $ to the rest of the world) - U.S. assets may be more attractive then U.S. goods (U.S. stocks) 33: no vertical because not effected by real exchange rate 35: (all other things being equal) money flows to whichever has higher return rate - Tighter monetary policy (makes the dollar less available) - Drop in confidence (not an issue for U.S. now) o US, Germany, UK, Japan= 4 AAA ratings - Capital flight plagues countries - Extreme example: $1=.67 Euros if people in Europe expect $ to go up, go out and buy a lot, example: if traded 670000Euros for $1million before, now worth 1 million Euros so you made money 39 : Fed cut interest rates faster than Europeans, gap got wider—lead to appreciation of $ because everyone wanted to buy safest assets they could (U.S. treasury bills)
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