Relationship b/w u.s. real money supply and dollar exchange, International Economics

Assignment Help:

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.

1435_U.S. real money supply and the dollar-euro exchange rate.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.

 


Related Discussions:- Relationship b/w u.s. real money supply and dollar exchange

Economical development, You can work on this on your own, or with one partn...

You can work on this on your own, or with one partner.  If there are more than two names on the submitted work, then I will give a maximum grade of 60 to each person listed on the

What is the national income identity for a closed economy, Q. What is the ...

Q. What is the national income identity for a closed economy? Answer: Y = C + I + G.

Importance of international trades, Importance of International Trades : T...

Importance of International Trades : The basis of international trade is to be found in the diversity of economic resources in different countries. All countries have not been end

International Trade, alternative explanations to the theory of internationa...

alternative explanations to the theory of international trade.

Trade theory, what you do understand by the term effective rate of protecti...

what you do understand by the term effective rate of protection

What is international relationship, International relations (IR) is the stu...

International relations (IR) is the study of relationships among countries, including the roles of states, inter-governmental organizations (IGOs), international nongovernmental or

Getting the Benefits from Technological Progress, What is the significance ...

What is the significance of the observations made by OECD in this case study regarding “The OECD economies are more strongly dependent on the production, distribution and use of kn

Trading, suppose that France has a trade surplus with the united kingdom, w...

suppose that France has a trade surplus with the united kingdom, what would you expect to happen to price,wages, and commodity price in France? why? what would happen to the terms

Present the case for floating exchange rates, Q. Present the case f...

Q. Present the case for floating exchange rates. Answer: 1. Monetary policy autonomy Governments would able to use financial policy to reach internal and extern

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd