(Macroeconomics)
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An ^^import quota^^: is a limit on the amount of a product that can be imported. When the import quota is set at zero, domestic producers are completely protected from foreign competition.
An ^^Import Tariff^^ is a tax on the specific imported product. The tariff serves to raise the price of the imported products in the eyes of domestic consumers. The gives the edge to domestic producers.
Other restrictions:
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^^Exchange rates^^: The value of one country’s currency in terms of another’s. The demand for dollars in the foreign exchange market is not the same as the demand for money. The demand for dollars in the foreign market is downward sloping.
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Two things that could cause the demand for dollars by foreigners to increase:
Two things that could cause the supply of dollars to increase:
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^^Appreciation^^: The increase of the value of a currency in terms of another country
^^Depreciation^^: the decrease of the value of a currency in terms of another currency
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Determinants of Exchange Rates:
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^^Gold standard:^^ kept exchange rates between countries fixed, a unit of currency that is equivalent to a stated amount of gold. The gold standard was one of the main methods of exchange of money. Economists believe that the gold standard led to balance of payments crisis and the great depression.
^^Managed float:^^ the current system for determining international exchange rates.
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^^Monetary and fiscal policy^^: can be used to fight inflation or recession. The impacts of monetary and fiscal policy in the context of an open economy are more complicated. Monetary and fiscal policy are less than effective when the economy is more open as opposed to closed to foreign trade.
In a closed economy, an increase in the money supply stimulates output and income in the short run. In an open economy, these effects will be dampened because imports will rise.
The exchange rates are impacted by the relative level of income and the relative level of prices in a nation.
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