by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Do Exchange Rates Affect Aggregate Demand and Aggregate Supply? Foreign trade in goods and services typically involves incurring the costs of production in one currency while receiving revenues from sales in another currency. As a result, movements in exchange...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Why do Central Banks Care About Exchange Rates? A central bank will be concerned about the exchange rate for multiple reasons: (1) Movements in the exchange rate will affect the quantity of aggregate demand in an economy; (2) frequent substantial fluctuations in the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Relative Inflation Shifts Demand and Supply for a Currency? If a country experiences a relatively high inflation rate compared with other economies, then the buying power of its currency is eroding, which will tend to discourage anyone from wanting to acquire...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do changes in the expected rate of return shift demand and supply for a currency?The motivation for investment, whether domestic or foreign, is to earn a return. If rates of return in a country look relatively high, then that country will tend to attract funds...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Expectations about Future Exchange Rates Shift Demand?One reason to demand a currency on the foreign exchange market is the belief that the currency’s value is about to increase. One reason to supply a currency—that is, sell it on the foreign exchange...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Dealers in the Interbank Market? Most people and firms who are exchanging a substantial quantity of currency go to a bank, and most banks provide foreign exchange as a service to customers. These banks (and a few other firms), known as dealers, then trade...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Who Demands and Supplies Currency in a Foreign Exchange Market? In foreign exchange markets, demand and supply become closely interrelated, because a person or firm who demands one currency must at the same time supply another currency—and vice versa. To get a sense...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Economic Unions? An economic union is a type of trade block composed of common market and a customs union.The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Unsafe Consumer Products Argument for Restricting Imports? One argument for shutting out certain imported products is that they are unsafe for consumers. Consumer rights groups have sometimes warned that the World Trade Organization would require nations...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Environmental Protection Argument for Restricting Imports? The potential for global trade to affect the environment has become controversial. A president of the Sierra Club, an environmental lobbying organization, once wrote: “The consequences of...
