Exam 4 Review Sheet - Review Sheet for Exam 4 Exchange Rate...

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Review Sheet for Exam 4 Exchange Rate Lecture (Oct 31) What is Money? Medium of exchange Unit of account Store of value Understand what are exchange rates and what is purchasing power parity. Understand why exporters (and import competing industries) prefer a weak currency and importers/consumers prefer a strong currency. Why does a weak currency hurt countries that are debtors? 1. Developing countries tend to take out loans in Euros, Dollars and Yen 2. A weak currency makes it more difficult to pay off these debts How does inflation affect exchange rates? How could inflation be good for people with lots of student loans? Why would inflation lead to a depreciation of a currency’s value? How does a fixed exchange rate work? 1. Government sets the exchange rate 2. The role of reserves Cohen Reading -What is currency substitution? -Why does Cohen think the One Nation/One Money view of the world is too simplistic (pages 4-5)? This is the central theme of the book, so you should generally understand this concept. -How does trust affect the value and acceptability of money (pages 10-13) -Know Cohen’s three meanings of currency domain (page 23) -How did territorial money emerge (pages 32-34)? -Understand the four ways that power is derived from money (pages 34-46) November 5 Lecture Understand the differences between these exchange rate systems 1. Fixed 2. Floating 3. Managed float Why would governments choose between a fixed exchange rate and a floating exchange rate?
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-Tradeoff between stability and flexibility/autonomy What is the Phillips Curve? Voters care about economic performance -Pocketbook Voting -Sociotrophic Voting What is the Political Business Cycle? Different types of political business cycles Electoral -Definition -Explain why governments prefer floating exchange rates with electoral political business cycles Partisan -How is this different from the electoral cycle? -Why do Democrats prefer floating exchange rates and Republicans prefer fixed exchange rates? Sectoral -How is this different from the other two? -Understand this chart and how it relates to sectoral preferences High Stability Low Stability High Exchange Rate Non-tradable goods - Low Exchange Rate Export-oriented Import-competiting How does the Wizard of Oz relate to the Gold Standard? YOU DO NOT NEED TO KNOW THE SYMBOLS AND CHARACTORS, BUT I INCLUDED THEM HERE IN CASE YOU MISSED THEM IN LECTURE SYMBOLS Oz Oz of Gold Yellow Brick Gold Standard Emerald City Washington D.C. Tornado Deflation GOOD CHARACTORS Dorothy Traditional American Values Tornado Deflation Tin Man Manufacturing Worker Scarecrow Farmer Lion Jennings-Bryan Toto Prohibition Party (Anti-Gold) Witches (N & S) Populist Strongholds BAD CHARACTORS
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Witch of E Bankers Witch of W Ohio (McKinley’s State) Munchkins Politicians
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  • Fall '07
  • Jensen
  • Exchange Rate, Foreign exchange market, IMF IMF

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