Term
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Definition
| The money of other countries |
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Term
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Definition
| The price at which one currency exchanges for another |
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Term
| Factors That Affect Demand in the Foreign Exchange Market (4) |
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Definition
1) The exchange rate (Only Qd)
2) World demand for Canadian exports
3) Interest rates in the United States and other countries
4) The expected future exchange rate |
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Term
| Reasons why the Exchange Rate influences CAD Qd (2) |
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Definition
1) Exports effect
2) Expected profit effect |
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Term
| Factors that Affect Supply in the Foreign Market |
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Definition
1) The exchange rate
2) Canadian demand for imports
3) Interest rates in the United States and other countries
4) The expected future exchange rate |
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Term
| Reasons why the Exchange Rate influences CAD Qs (2) |
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Definition
1) Imports effect
2) Expected profit effect |
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Term
| Factors that Change the Demand for CAD (3) |
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Definition
1) World demand for Canadian exports
2) Canadian interest rate relative to foreign interest rates
3) The expected future exchange rate |
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Term
| Factors that Change the Supply for CAD (3) |
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Definition
1) Canadian demand for imports
2) Canadian interest rate relative to foreign interest rates
3) The expected future exchange rate |
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Term
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Definition
| Practice of seeking to profit by buying in one market and selling for higher price in another related market |
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Term
| What does Arbitrage Achieve? (4) |
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Definition
1) The law of one price (same price at all markets)
2) No round-trip profit (no profit from buying one good for another or exchanging currencies)
3) Interest rate parity (same profit at any interest rate and currency)
4) Purchasing power parity (worth same in any currency) |
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Term
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Definition
| It is trading on the expectation of making profit |
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Term
| How to Predict Exchange Rates |
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Definition
| Using trends which depend on market fundamentals, they can help ignore volatility and predict exchange rates |
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Term
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Definition
RER = (E x P)/P*
E = Exchange rate, P = Domestic price level, P* = Foreign price level |
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Term
| Exchange rate policies (3) |
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Definition
1) Flexible exchange rate
2) Fixed exchange rate
3) Crawling peg (Mix of flexible and fixed, prevents large swings) |
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Term
| How does the Gov. keep the Fixed Exchange rate in place? |
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Definition
| When demand shifts it will either buy or sell CAD. It buys CAD with reserves and sells CAD in foreign exchange markets for reserves, this increases/decreases supply and keeps the exchange rate regulated. |
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Term
| Balance of payment accounts |
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Definition
| Balance of payment accounts are accounts that records all international trading, borrowing and lending into 3 accounts |
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Term
| Balance of Payment Accounts (3) |
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Definition
1) Current account (net exports(exports-imports) + net interest + net transfer
2) Capital and financial account (records foreign investment in CAN - CAN investment abroad)
3) Official settlements account (change in official reserves, foreign current inc. = decrease in account) |
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Term
| Sum of All Balance Payment Accounts |
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Definition
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Term
| Net Borrowers and Lenders |
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Definition
| Countries that borrows more then they lend in a given time period are borrows, opposite for lenders. |
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Term
| What Makes a Country An International Borrower or Lender? |
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Definition
| If the domestic interest rate is high then the world interest rate then it is a borrower. This is determined by comparing graphs where the country does not trade with the world and with trading. If D>S it is a borrower. Opposite for lenders. |
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Term
| Debtor and Creditor Nations |
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Definition
| Based on stocks not flow, has a stock of debt that is greater then what it owes means it is a debtor nation, in other words in all of history it has borrowed more then it has lent. Opposite for lenders. |
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Term
| Current Account Balance Equation |
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Definition
| CAB = NX + Net Interest Income + Net Transfers |
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Term
| Government Sector Balance Equation and Private Sector Balance Equation |
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Definition
Gov. sector balance = Net Taxes (T) - Gov. Expenditure (G)
Private sector balance = Savings (S) - Investments (I)
Both are equal to net exports, NX = (T-G) + (S-I) |
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Term
| Aggregrate Income Equation |
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Definition
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Term
| Exchange Rate Types Affecting Balance of Payments? |
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Definition
| Short run does, a fall in price lowers real exchange rate. Long run does not get affected |
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Term
| Types of Aggregate Supplies |
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Definition
| Long run and short run, both based off of the relationship between Q of real GDP supplied and price level. |
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Term
| Short and Long Run Variable or Fixed? |
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Definition
Short run has fixed capital and variable labour
Long run is all variable with no fixed |
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Term
| What do Long run and Short run Aggregate Supply Look Like? |
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Definition
Long run is a straight horizontal line called LAS
Short run is an upward sloping line called SAS |
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Term
| Difference between price changes for aggregate supply |
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Definition
| In short run a price increase ends up increasing real GDP supplied, which lowers real wage rate and means producers hire more employees, thus the reason real GDP supplied rises. In long run the real wage rate will act accordingly to price, not much change. |
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Term
| How does Real GDP supplied measure in both terms? |
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Definition
| In short run real GDP supplied can be higher or lower then potential GDP, the output gap is then called an inflationary gap or a recessionary gap. |
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Term
| Factors that cause Aggregate supply to change (2) |
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Definition
1) Change in potential GDP - affects long and short run
2) Change in money wage rate - affects only short run (increase means decrease in SAS curve, shifts left) |
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Term
| Types of Changes that Increase Potential GDP (3) |
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Definition
1) Increase in full employment Q of labour
2) Increase in quantity of capital
3) Advance in technology |
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Term
| Factors that affect Aggregate Demand (4) |
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Definition
1) Price level (movement only, inverse relationship)
2) Expectations (ex// Income, future interest rate)
3) Fiscal policy and monetary policy (ex// lower tax rates = more Q of D, more amount of money, etc.)
4) The world economy |
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Term
| Factors that make Aggregate Demand have an inverse Relationship (2) |
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Definition
1) Wealth effect, as P increases, W decreases, save more
2) Substitution effect
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Term
| Types of Substitution Effects (2) |
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Definition
-Intertemporal effect (Price increase, real value of money decrease, interest rate increase, borrowing decrease and real GDP D decrease) This change the time at which you buy goods
-International effect (Price of domestic goods increases, goods compared to foreign increases) Based on relative prices compared to other countries |
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Term
| In Short Run, Real GDP Can Be... Then Potential GDP |
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Definition
| Larger, equal to or smaller then potential GDP |
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Term
| In Short Run, What is Fixed (Sticky) |
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Definition
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Term
| If Aggregate Demand Curve Shifts Faster Then The Long Run Supply Curve (LAS) Then... |
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Definition
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Term
| Why Does a Business Cycle Occur? |
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Definition
| Aggregate Demand and Short Run Supply are always fluctuating but money wage rate doesn't change rapidly enough to make real GDP = potential GDP |
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Term
If SAS > AD then there is a ...,
If SAS < AD then then there is a ..., |
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Definition
There is an output gap called the recessionary gap which shows how much SAS is > then AD.
There is an output gap called the inflationary gap which shows how much SAS < then AD |
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Term
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Definition
| A recessionary gap with inflation |
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Term
| Macroeconomic Schools of Thought Views (5) |
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Definition
1) Classical - Self-regulating economy, no need for gov. regulations
2) New Classical - Business cycles are common due to technological advances
3) Keynesian - Need a lot of gov. regulation, fiscal and monetary policies are a must
4) New Keynesian - Wage rate and P of goods are fixed (sticky)
5) Monetarist - Growth rate of money is steady, it will make the economy fine, some gov. regulation needed |
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