Ppp burgernomics etc
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Quantitative Easing Why does Mr. Klein choose to pay $3.30 per gallon to fill up his car, when he could drive 10 miles to fill up for $3.15 per gallon?
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Transcript of Ppp burgernomics etc
Quantitative EasingWhy does Mr. Klein choose to pay
$3.30 per gallon to fill up his car, when he could drive 10 miles to fill up for
$3.15 per gallon?
XE.com Short Quiz
1. Which currency is strongest against the others?2. Which currency is the weakest?3. If Klein wants to spend 6100 peso for a fabulous weekend in
Cabo San Lucas, how much money is that in dollars?4. Draw the change the US $ if the Fed increases the discount
rate to 5%.
“Crowding Out effect”
What happens to the US $ if?• US firms increase direct
investment in a poor country such as Guatemala?
• Loanable funds in US S or D?• What happens to NCO?• How does that effect the US $
exchange rate in the Forex market?
International Currency markets• Flexible exchanges• “floating”• Based on S & D
• Fixed exchanges• Set by central banks• “pegged” to another currency• Not too popular any more
Advantages and disadvantages of each
Flexible Exchange Rates• Appreciate = stronger against…• Depreciate = weaker against…
• Stronger:
• Weaker:
Nominal vs. Real Exchange rate
• Nominal exchange rate• The tradable rate of exchange• For example 12 Pesos = 1 $, or $0.082 for 1 Peso• But that’s not the real rate since fiat money’s value
based on purchasing power• If I go to Mexico, will X really be the same price?• So: Real Exchange rate is:• Nominal X Domestic price / foreign price (in local
currency)• Students going to dentist? Other examples?
In the long run though…..• People adjust purchases and exchange rates
balance out so we get• Cigarettes for a while in the 90s• Purchasing power parity (PPP)• Goods should have the same prices in different
countries after currency exchange
• Burgernomics
?
?
$ to Euros
Who gains? Who “loses”?
Mankiw questions
Page 691 Problem #1,6, 8, 9, 10,11
