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

Assignment Help:

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.


Related Discussions:- Discuss the relationship between the u.s. real money supply

Long-term economic growth, Q. It is argued that import substitution is a m...

Q. It is argued that import substitution is a misguided trade policy if the intent is to show long-term economic growth. Illustrate the reasons underlying this argument. Answe

Modes of Entry and Internalisation, Although the elegance and comprehensive...

Although the elegance and comprehensiveness of transactions costs reasoning has provided the internalisation approach with a powerful logic (Rugman, 1981, 1985), it is still defici

Global crisis, Chose a problematic situation that is related to your workpl...

Chose a problematic situation that is related to your workplace and use the following approach to investigate it. Part A:    i-  Give a brief description of the situation.

Gross barter terms of trade, tion..What is the range of gross barter terms ...

tion..What is the range of gross barter terms of trade ?

Explain why relative ppp is useful, Q. Explain why Relative PPP is useful w...

Q. Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets. Answer: For instance If the U.S price level increase

Dd-aa schedule, Q. Imagine that the economy is at a point on the DD-AA sche...

Q. Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD and where both the output and asset markets are out of equilibrium. Explain what will h

Ppp, what is ppp

what is ppp

Real exchange rate affects exports and imports, Q. Explain how an i...

Q. Explain how an increase in the real exchange rate affects exports and imports. Answer: While the real exchange rate rises domestic products are cheaper relative to

Relationship b/w u.s. real money supply and dollar exchange, To answer the ...

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 th

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