Discuss the relationship between the u.s. real money supply, International Economics

Q. To answer the following question, please refer to the figure below. Concentrating only at the lower left quadrant, discuss the relationship between the U.S. real money supply and the dollar/euro exchange rate, E$/E.

1513_Discuss the relationship between the U.S. real money supply.png

Answer: The lower left quadrant in the figure described the PPP (Purchasing Power Parity) relationship. The relationship with the U.S real money supply and the dollar/euro exchange rate E$/E is negative.s

E$/E is equal to the price level ratio PUS/ PE in this derivation of the relationship the following variables are assumed constants,

M1US, RE, and PE

So, E$/E = M1US/PUS

The raise in PUS leads to a positive increase in E$/E.

P1US will shift to P2US

Therefore the purchasing power of the dollar decreases because of the increase in the price level.

E1$/E will shift to E2$/E

Explicitly the dollar depreciates due to PPP.

Posted Date: 6/27/2013 8:33:37 AM | Location : United States







Related Discussions:- Discuss the relationship between the u.s. real money supply, Assignment Help, Ask Question on Discuss the relationship between the u.s. real money supply, Get Answer, Expert's Help, Discuss the relationship between the u.s. real money supply Discussions

Write discussion on Discuss the relationship between the u.s. real money supply
Your posts are moderated
Related Questions
When asked by the Carnegie Commission to prepare a report on post war Preferential Trading Agreements, Viner (1950) pointed out that they are not free trade. He used the concepts o

ln?(?FDI?_t )=ln??(C)+? ln?(?CNGDP?_t )+ßln?(?GDP?_t ?)+a ln?(DIST)+fCAFTA+?_(1 ) ln?(?EXPORT?_t )+?_2 ln?(?GDPM?_t )+?_3 ln?(?CPI?_t )+?_4 ln?(?GDPA?_t )+e

Q. It has been claimed that the Chinese burst of modernization which has been propelling its manufactured exports throughout the world at an unprecedented rate, is made possible b

Impact of the Project on the External Economic Environment International Medical Center will significantly affect the external economic environment in different aspects: • Th

impact of World trade organisation over indian economy?

How can I present the theories step by step in an assignment?

Q. Economic theory in general and trade theory in particular are replete with equivalencies. For illustration, it is argued that for any specific tariff one can search an equival

what are the different forms of opportunity cost theory


Brifly explaine the alternative explanation to the theory of international trade