exhange rates - Our imports fall and exports rise as euro...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
If you got to EU you need to get euros in order to shop in Europe Go to bank and you exchange dollars for euros Price of euros is the number of dollars you exchanges Price of currency is the exchange rate Dollars per euro is price of euros Currency itself has no intrinsict value If dollars per Euro increases, it is called appreciation of the Euro, we buy less stuff from the European union. If dollars per euro increase, appreciation of the euro (we buy less tuff from EU because it takes more money) If dollars per euro increase it means that euro per dollar goes down. Depreciation of the dollar if the euro appreciates. If their stuff is more expensive to us, our stuff is cheaper to them.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Our imports fall and exports rise as euro gets more expensive Market equilibrium occurs where demand for U.S. dollars equals supply Equilibrium implies a balance of payments The thing of horizontal access is the bottom of price. Government budget deficits lead to trade deficits Foreign currency flows in to lend to us. Foreign currency flows out to import. Balance of payments Euros per dollar * U.S. price per dollars = EU prices in terms of Euros in equilibrium. In the first term the dollars are canceling. So the left hand side is in Euros Imagine the left hand side is lower than the right hand side (you can send fewer euros to get shoes in the U.S. than in the EU)...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online