11:373:101 Lecture Notes - Lecture 21: Demand Curve, Capital Account

• School: Rutgers University
• Department: Environmental and Business Economics
• Course: 11:373:101
• Professor: P Gottlieb

Document Summary

Topic 18 trade and exchange rates 2. Intersection of supply and demand in international currency markets gives the equilibrium exchange rate. Optimism increases investment in country"s stocks and bonds outward shift in demand. Imf wants argentina to stop artificially maintaining high er. Reduced risk of running out of dollars. But value of peso will go back down reduced purchasing power (will cause inflation) Prices of imported goods in argentina will look more expensive to argentine citizens. Ir goes up currency value goes up. Higher ir people want to buy more bonds (make more in interest) higher demand for nation"s currency. Currency value goes up (shift in demand curve) A set of dispersed, decentralized firms and individuals lack of coordination. Speculators can"t move a market in certain direction. Market will inevitably shift due to external factors. Place bets these bets may hasten the inevitable shifts if correct, but cannot actually influence them.