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JEOPARDY! Trabecono mics II! 100 50/ 50 100 Trabeconom ics 100 100 200 200 200 200 200 300 300 300 300 300 300 400 400 400 400 400 500 500 500 500 500 Value of currency Trade basics Impact of Exchange Rates 100 100 200 400 500 The price of one currency in terms of another Exchange Rate Rates determined in free markets by supply and demand. Floating exchange rates. When a unit of a country’s currency can buy more of another currency. Appreciation If you take a trip to Europe, the value of the dollar will do this. Depreciate An open market sale by the Fed will lead the currency to _______. (Hint: capital flows…) Appreciate Exchange rates set by government decisions and maintained by government actions. Fixed exchange rates. A reduction in the official value of a currency. Devaluation An increase in the official value of a currency. Revaluation. Following an increase in imports, the government will have to maintain a balance of payments _______ if it wishes to maintain current exchange rates. Deficit The amount by which the quantity demanded of a country’s currency exceeds the quantity supplied, at a given price. Balance of Payments Surplus As a foreign country’s GDP rises, the U.S. GDP will _______, all other things being equal. Rise The ability to produce something more efficiently than a trading partner. Absolute Advantage In informal terms: if you are terrible at everything this describes the activity that you are least terrible at doing . Comparative Advantage. DAILY DOUBLE! ________ account flows describe payments that cross borders to pay for financial assets such as bank accounts, bonds, and stock. Capital Account If the United States buys more goods from Canada than Canada does from us we run this. Current account deficit ______ _____ have the most immediate impact on exchange rates. Interest rates. In the “medium run”, this has the most significant impact on exchange rates. Economic Performance The supply of a currency is generated primarily by a country’s _______ Desire for Imports DAILY DOUBLE! This describes how exchange rates adjust do that over the long run the same good costs the same in every currency. Purchasing Power Parity According to the purchasing power parity theory, differences in country’s _______ _____ are primarily responsible for changes of exchange rates. Inflation rates Currency Appreciates: What happens to exports? Decrease Currency Appreciates: What happens to Aggregate Demand? Shifts to the left Currency Depreciates: What happens to net exports? Increase Currency Depreciates: What happens to Real (adjusted for inflation) GDP? Increase Currency Appreciates: What happens to inflation? Inflation falls This guy makes appearances in a variety of MTV shows, and has produced his own movie “Don’t try this at home” / A nation that freely trades with other nations. Steve-Open Economy China runs this in the capital account with the United States / He captains the Pittsburgh Penguins Defi-Sidney Crosby Clandestine government research facility which created Wolverine / the price of one currency in terms of another Weapon Xchange Rate Artist shown here / A reduction in the value of a currency P-diddepreciation Increased demand for exports will lead to currency ________ / This actor plays “Stiffler” Apprecia-Seann William Scott America’s consumption possibilities frontier may be expanded using this / A Dan Akroyd and Eddie Murphy movie shot in Philadelphia (about economics!) International Trading Places DAILY DOUBLE! American goods which are sold in international markets \ The last name of the actress who plays Queen Amidala in Stars Wars. ExPortman Goods purchased from foreign countries/ This IFC sketch comedy series stars Fred Armisen and Carrie Brownstein ImPortlandia • He announced he will retire as an Eagle / If a country can produce a good more efficiently than another, it has this. Donovan McN-absolute advantage • If a country can produce something at a lower opportunity cost than another country, it has this/ He’s U2’s guitarist. Comparative Advant-Edge A legal limit on the import or export of goods across borders / this MC formed one half of the Hip-Hop group Black Star – the other half was Mos Def. Quo-Talib Kweli