Chapter 24 example #70807

a foreign demand for dollars and the satisfaction of this demand increases the supplies of foreign monies held by U.S. banks

increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.

Americans will buy more Mexican goods and services.

Increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound.

managed floating exchange rates.

current account deficits.

increased current consumption and increased indebtedness to foreigners.

the United States.

exchange rates are virtually fixed.

inflation to occur.

a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing power in various countries.

upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

demand for euros and a supply of dollars.

its goods exports and imports, and its services exports and imports.

compensates for differences in the current and capital accounts.

The current account summarizes U.S. trade in currently produced goods and services. The merchandise trade balance is the difference between its exports and imports of goods.

the net flow of debt forgiveness

the U.S. forgave more debt than foreigners forgave debt owed by Americans.

flows of payments from the purchase or sale of real or financial assets, here and abroad.

the sum of all transactions that take place between its residents and the residents of all foreign nations

merchandise exports and imports, tourist expenditures, and interest plus dividends from the sale and purchases of financial assets abroad

foreign currencies and stocks of gold held by government

official reserves must be sold, drawing down its stock of official reserves.

government buys foreign official reserves, creating a negative entry in the U.S. purchases of foreign assets ensuring the balance of payments balances

Passed in 1930 to establish very high tax tariffs, to reduce imports and stimulate the domestic economy. Resulted in retaliatory tariffs by other nations

1. Changes in tastes or preferences 2. Relative income changes 3. Relative inflation rate changes 4. Changes in relative real interest rates 5. Speculation is another determinant. If one believes the value of a currency is about to fall, it will increase the supply of that currency and reduce its demand.

there will be a surplus of that currency and its value will depreciate.

1. Uncertainty and diminished trade may result if traders cannot count on future prices of exchange rates, which affect the value of their planned transactions. (However, see Last Word for this chapter for ways in which traders can avoid risk.) 2. Terms of trade may be worsened by a decline in the value of a nation's currency. 3. Unstable exchange rates can destabilize a nation's economy. This is especially true for nations whose exports and imports are a substantial part of their GDPs.

$379 billion

a record $806 billion.

those that are pegged to some set value, such as gold or the U.S. dollar.