ECON 202 Word Scramble
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| Question | Answer |
| Exchange Rate: | the price at which one currency trade for another |
| What does the exchange rate affect? | relative rices of goods/services/assets in dif. countries, balance and capital flow |
| Appreciation of exchange rate | money gains value, favored in exchange |
| Depreciation of exchange rate | money loses value, not favored in exchange |
| Floating (flexible) exchange rate: | value of currency determined by forces of Supply and Demand, gov. makes no attempt to fix it |
| Supply of Dollar in the Yen-Dollar Market | US imports from Japan, US purchases of Japanese assets |
| Demand of Dollar in the Yen-Dollar Market | Japan Imports from US, Japanese purchases of US assets |
| What factors affect exchange rate? | inflation, economic outlook, political unrest, etc highly sensitive to monetary policy actions |
| How does exchange rate fluctuate with expansionary monetary policy at home country? | lower interest rate at home makes home investment less attractive, demand for home currency decreases, home currency depreciates, export more/ import less/ help boost aggregate demand |
| How does exchange rate fluctuate with expansionary monetary policy at home country? | higher interest rate at home makes home investment more attractive, demand for home currency increases, home currency appreciates, export less/ import more/ reduce aggregate demand |
| Fixed (pegged) exchange rate: | value of currency set by official gov. policy, gov. intervention needed to maintain fixed rate |
| What are the 3 policy goals of Trilemma of International Macroeconomics? | fixed exchange rate, independent monetary policy, free capital mobility |
| What is Trilemma of International Macroeconomics? | Says that all 3 policy goals can not be met at the same time |
| Why would you choose and fixed exchange rate? What would you have to give up in exchange? | eliminate volatility in exchange rate, but have to give up either independent monetary policy or free capital mobility |
| Why would you choose a floating exchange rate? What would you have to give up in exchange? | Can have effective monetary policy, but have to deal with uncertainty in exchange rate |
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reganbobo15
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