AP Econ - Foreign Exchange Market

Rule Of 70

number of years to double = 70/growth rate

Current Account

Goods and Services, Transfers, Profit

Financial Account

Physical and Financial Assets

Current Account + Financial Account =

0

Import Quota

Difference between Tariffed Price and world price * Quantity demanded -Quantity supplied at tariffed price

Aggregate Production Curve

A hypothetical function that shows how productivity depends on the quantities of physical capital per worker vs the real GDP per worker

Shifters of Aggregate Production Curve

Physical Capital shifts along curve, technology shifts the curve up or down, and human capital does something

How To Find Real Interest Rate

Real interest rate B = Nominal interest rate B * (Price Level Country A / Price Level County B)

Purchasing Power Parity (PPP)

Cost of good in one country costs the same as the same good in another country. This does not mean exchange rates are equal

How can Governments shift supply of foreign exchange market

Buying their own currency will shift supply left while selling their own currency will shift supply left

How can Governments shift demand of foreign exchange market

Increasing interest rates will shift demand to the right, Decreasing interest rates will shift demand to the left

Fixed Exchange Rate

Occurs when government maintains the exchange rate at a target rate

Floating Exchange Rate

Occurs when exchange rate is controlled by the supply & demand market.

Devaluation

Decrease in currency value under fixed ER

Revaluation

Increase in currency value above fixed ER

Tariffs

Taxes on Imports