ECON 2020 Lecture Notes - Lecture 20: Import Quota, Exchange Rate, Real Interest Rate

40 views2 pages
5 Apr 2017
Department
Course
Professor
04/05/2017
Chapter 19
Foreign Currency Exchange
Net capital outflow
Quantity of dollars supplied by foreign assets
Supply curve is vertical
Quantity of dollars supplied for net capital outflow
Does not depend on real exchange rate
Demand for foreign currency exchange
Net exports
Quantity of dollars demanded to buy U.S. net exports of goods
and services
Demand curve is downward sloping
Equilibrium Real Exchange Rate
Demand for dollars
By foreigners, arising from US exports of goods and services
Exactly balances supply of dollars
From Americans
Arising from US net capital outflow
Real Equilibrium in an Open Economy
○ Identities
Market for loanable funds: S=I+NCO
Market for foreign currency exchange:
Market for loanable funds
Supply: national saving
Demand: domestic investment and net capital outflow
Equilibrium, real interest rate, r
Net capital outflow
Slopes downward
Equilibrium, real interest rate, r
Market for foreign currency exchange
Supply: net capital outflow
Demand: net exports
Equilibrium, real exchange rate, E
Equilibrium, real interest rate, r is price of goods and services in
the present relative to the price in the future
Equilibrium real exchange rate, E
Price of domestic goods and services relative to foreign prices
E and R adjust simultaneously and determine
National Saving
Domestic Investment
Net Capital Outflow
Net Exports
Government Budget Deficits
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Quantity of dollars supplied by foreign assets. Quantity of dollars supplied for net capital outflow. Does not depend on real exchange rate. Quantity of dollars demanded to buy u. s. net exports of goods and services. By foreigners, arising from us exports of goods and services. Demand: domestic investment and net capital outflow. Equilibrium, real interest rate, r is price of goods and services in the present relative to the price in the future. Price of domestic goods and services relative to foreign prices. E and r adjust simultaneously and determine. Reduces national savings, supply of loanable funds, and net capital outflow. Directly influences quantity of goods and services that a country imports/exports. Increase in demand for dollars in the market using foreign currency exchange. No change in real interest rate, net capital outflow or net exports. Does not affect u. s. trade balance: nx= nco=s-i. Large and sudden reduction in demand for assets located in that country.

Get access

Grade+20% OFF
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers