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Applied international macroeconomics

Terms in this set (281)

What are exchange rates?
Exchange rate is the price of one currency in terms of another
What determines the value of an exchange
Changes in the value of an exchange rate depend on variations in relative supply and demand of a currency.
What is the current account normally dominated by?
Net trade flow
Closed economy income
Y = C + I

Where S = Y - C
Circular flow equilibrium implies?
S = I
What if you add trade flows to the circular flow of income ?
S + IM = I + EX

Which implies

EX - IM = S - I
What does a persistent current account surplus tend to correlate to?
persistent current account surplus tends to correlate with an increase in national net worth.
What does a persistent current account defecit tend to correlate to?
A persistent current account deficit tends to correlate with a decline in national net worth.
Real balances are defined as?
The money supply relative to the price level
The interest rate indicates?
The interest rate indicates the percentage return from an investment overtime
In an exchange rate peg what happens?
In an exchange rate peg the price of a currency is fixed through central bank intervention
What are the motives for holding money?
Precautionary, transactions and speculative motives
Compared to the domestic return, the foreign return is given by the foreign interest rate and the rate of depreciation of the. Domestic currency. Ceteris paribus a fall in the expected value of the exchange rate would do what to foreign returns?
A fall in the expected value of the interest rate would reduce the foreign return
In an international comparison of foreign and domestic return, foreign return is given by?
Foreign return is given by the sum of the foreign interest rate and the rate of the depreciation of the domestic currency
Money demand depends on the rate of interest as well as real income so what happens when there is a rise in income?
A rise in income will higher transactions demand and lead to a higher equilibrium interest rate in the money market
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