Econ Paper - Depreciation of the U.S Dollar: Good News for...

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Depreciation of the U.S Dollar: Good News for us, Better News for them William H. Jiang Section: AFE – 1:00 PM TA: Odilon Camara Article: Love the one you’re with The Economist, October 20 th , 2007
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Introduction As the U.S. dollar declines, which it has been, European countries have been experiencing a favorable consumer lifestyle with the stronger Euro. As written in The Economist’s October 20 th , 2007 article, Love the one you’re with, the U.S dollar has declined in value “by more than a fifth of since 2002 against the currencies of its trading partners.” Such a drop in the value of the dollar relates in general to international economics but more specifically, to the currency exchange rates between the U.S dollar and the Euro, the Yen as well as the Canadian dollar. In addition to the exchange rates, the domestic monetary policies of the countries with appreciating currencies vs. the U.S dollar are also positively affected. As the article states, the depreciation of the U.S dollar has positive impacts on both the United States as well as the countries the United States trades with. It is generally assumed that as the U.S dollar depreciates, the U.S economy should falter along with it. This is not entirely true. With the depreciation of the dollar, the U.S can help itself “sell its wares abroad” and curb “its spending on imports.” With this the United States’ “exports rose in case terms by 12.8% from a year earlier” allowing the country to rebalance and reshape the its trading habits. This is relevant to Macroeconomics because with the depreciation of the U.S dollar, like shown in the article; the U.S is keener to export than to import. This lessens domestic or internal spending on foreign goods and gives U.S producers and opportunity to increase sales overseas. Though the depreciation of the U.S dollar may generally seem like a step towards the right direction for U.S producers, the depreciation of the U.S dollar is even better news for countries that trade with the United States.
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With the depreciation of the U.S dollar, the Euro, the Yen and the Canadian dollar appreciates. For example: Normally one U.S dollar could exchange for one Euro. But with depreciation, it will cost two U.S dollars to exchange for one Euro. The article identifies this and explains the positive effects it has on the consumers abroad. Because
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Econ Paper - Depreciation of the U.S Dollar: Good News for...

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