Four tips: *Always change the D line on ones currency graph, the S line on the other currency's graph. *Move the two lines of both graphs in the same direction and you will have the correct answer. *If D on one graph increases, S on the other will also increase.*If D moves to the left, S will move to the left on the other graph.
Changes in Exchange Rate: Exchange rates (e) are a function of the supply and demand for currency. An increase in the supply of a currency will make it cheaper to buy one unit of that currency. A decrease in supply of a currency will make it more expensive to buy one unit of that currency. An increase in the demand for a currency will make it more expensive to buy one unit of that currency. A decrease in demand for a currency will make it cheaper to buy one unit of that currency.
Appreciation: appreciation of that currency occurs when the exchange rate of that currency increases. (E increases) the dollar is stronger
Depreciation: occurs when the exchange rate of that currency decreases (e decreases) the dollar is weaker.
Exchange rate determinants: Consumer Tastes: the increase in the supply of dollars leads to the depreciation of the dollar. Relative Incomes: imports tend to be normal goods. This increases he demand for the dollar, causing the dollar to appreciate and the currency to depreciate. Relative Price LevelSpeculation
Changes in Exchange Rate: Exchange rates (e) are a function of the supply and demand for currency. An increase in the supply of a currency will make it cheaper to buy one unit of that currency. A decrease in supply of a currency will make it more expensive to buy one unit of that currency. An increase in the demand for a currency will make it more expensive to buy one unit of that currency. A decrease in demand for a currency will make it cheaper to buy one unit of that currency.
Appreciation: appreciation of that currency occurs when the exchange rate of that currency increases. (E increases) the dollar is stronger
Depreciation: occurs when the exchange rate of that currency decreases (e decreases) the dollar is weaker.
Exchange rate determinants: Consumer Tastes: the increase in the supply of dollars leads to the depreciation of the dollar. Relative Incomes: imports tend to be normal goods. This increases he demand for the dollar, causing the dollar to appreciate and the currency to depreciate. Relative Price LevelSpeculation
Purchasing power policy: When the currency rates are set by international markets changes will be based on the actual purchasing power of the currency.
If the U.S. Dollar to European euro rage is 1.5 to 1 , then each 1.5 will buy one euro, however if an item in the U.S. Cost 1.50 and then cost more or less than one euro, the parody is lost. Markets will adjust quickly in floating rates or pressure for change will occur in fixed rates.
If the U.S. Dollar to European euro rage is 1.5 to 1 , then each 1.5 will buy one euro, however if an item in the U.S. Cost 1.50 and then cost more or less than one euro, the parody is lost. Markets will adjust quickly in floating rates or pressure for change will occur in fixed rates.
Why do we exchange currencies
1. to invest in other countries stocks & bonds
2. To sell exports buy imports
3. To build factories or stores in other markets
4. To hold currencies in bank accounts for future exports imports or business loans
5. To speculate on currency values
6. Control excessive imbalances
Absolute Advantage
-Individual: exists when a person can produce more of a certain good/service than someone else in the same amount of time.
-National: exists when a country can produce more of a good/service than another country can in the same time period.
Comparative Advantage
-Individual/National: exists when an individual or a nation can produce a good/service at a lower opportunity cost than can another individual or nation can.
Input Problems:
-the country or individual that uses the least amount of resources land or time has the absolute advantage.
Output Problems:
-the country or individual that can produce the most has, the country or individual that has lowest opportunity cost has comparative advantage for that product.
AA:
-faster, more efficient
CP:
-lower opportunity cost
Nice notes that you have Jennifer. Especially with the picture with the two countries comparing their products. From the picture, we can obviously see that country B has the absolute advantage for both cars and trucks
ReplyDeleteThe chart was great way for me to relearn how to calculate input and output, and especially comparative advantage. If you included that input is chosen over forgone, your post would have been clearer. Same thing with output, which is what's given over what's produced :)
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