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

Case study of savings and loans association, Argus Savings and Loan Associa...

Argus Savings and Loan Association began in 1956 in Hometown. As is typical of savings and loan associations, Argus accepts the savings of individuals and organisations and uses th

Gravity model of trade, I need to use the gravity model to analyse the eff...

I need to use the gravity model to analyse the effects of the euro on tradeflows. is this something u can do?

Consumers and businesses, if the US dollar depreciates dramatically relativ...

if the US dollar depreciates dramatically relative to the Chinese yuan, what effect would this have on consumers and businesses in each country? When is a falling dollar good or ba

Who is liable for discrimination?, een subject to a discrimination complain...

een subject to a discrimination complaint as a result of their recent recruitment campaign- They told the recruitment agency that they were looking for ‘young women with flair'' to

International trade, explain various gains from international trade

explain various gains from international trade

Social Networking Sites, What is the learning of International Economics to...

What is the learning of International Economics to the social networking sites

Partial equilibrium analysis, How can I graph partial equilibrium analysis ...

How can I graph partial equilibrium analysis for demand and supply of two countries who have a transport cost of $5?

Show empirical support for the existence of paradox, Q. The Metzler Parado...

Q. The Metzler Paradox is a special case of the optimum tariff idea. Discuss this assertion. Could the optimum tariff tend to be a high one or a low one in the case where this p

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