Lecture on global economy 11-3

Lecture on global economy 11-3 - November 3, 2010 Border...

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November 3, 2010 Border policies Exchange rate policies o Most important of the policies Influences price of capital assets as they flow across boundaries o Most comprehensive factor o Make up largest international market o They can be fixed as they were with the gold standard Or us fixes dollar to gold and everyone fixes money to dollar o Exchange rate system must take by surprise by operating secretly so that you can affect the market EX: China keeps currency down by doing this They make the price of exports lower and they depend upon exports They sell a lot of wang to keep it down and buy a lot of dollars to keep dollar from going down Biggest issue o SIDE NOTE: when central banks sell a lot of wang they also create a lot of money in its own economy which can be inflationary (too much money too few goods) gov will try to sterilize intervention by going back to domestic operations and soak up wangs Will ultimately have less of an effect on exchange rates Why governments can not have too much of an effect on exchange rates even if they intervene Trade policies o Makes up about 15 trillion dollars per year o Not biggest market in international system smallest o Tariff barriers Simply tax a 10% tariff or slap on a fee
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This note was uploaded on 09/13/2011 for the course IAFF 005 taught by Professor Nau during the Fall '08 term at GWU.

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Lecture on global economy 11-3 - November 3, 2010 Border...

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