POLC99H3 Lecture : Lecture 07 Notes

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17 Dec 2010
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The supply of financial markets and the international monetary system: International investors are buying u. s. assets as they see it as viable still: u. s. since usd declines their currency should decline. may result in welfare loss; extremely risky. they do this because it makes their export goods cheaper; enhances their competitive advantage. If firms inside the country find that domestically their products are not selling then they will take advantage by depreciating their currency: when one currency depreciates then another currency will appreciate (the way the system works) appreciating countries will institute tariffs and trade barriers to help their currency depreciate leading for generalized trade wars; this leads to an economic trade system protectionist system. trade wars are tit for tat mechanisms/retaliations where everyone tries to: benefits to key currency country: protect their trade everyone is worse off (prisoners dilemma, seignorage privilege of printing money.

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