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Flashcards in Extra Deck (24)
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1
Q

finding equilibrium level of output

A

input all numbers, put ys together and solve

2
Q

does real exchange rate have units?

A

no b/c cancel out

3
Q

if PPP holds then

A

1=(ex10000)/500000 so e=50JPY/USD

4
Q

capital movements in Jp in 80s

A
  • 1971: new ForEx w/ wide band fluctuations
  • 1973: truly flexible ForEx
  • post 1980: capital movements allowed unless explicitly prohibited
5
Q

JPY/USD rate under fixed system

A

360JPY/USD

6
Q

US policies effect on exchange rate

A
  • fiscal deficits leads to increase in money demanded
  • tight monetary policy leads to decrease in money supplied
  • increases IR which creates dollar overvaluation b/c attracted foreign capital
7
Q

Plaza Agreement

A
  • required deregulation of Jp markets
  • JPY/USD rate sharply decreased after 1985
8
Q

historical ‘covered interest parity’

A
  • held perfectly 1980-4
  • JPY/USD rate sharply decreased after 1985
9
Q

current/capital-acount in Jp in 80s

A
  • increase in Jp current-account surpluses accompnaied by increase in Japanese capital-account deficits 1981-7
  • b/c increase in current-account surpluses there is a capital outflow leading to increased capital-account deficits
10
Q

classical model

A
  • prices and wages flexible
  • full employment achieved
  • output at potential output
  • Say’s law: demandside follows supplyside
11
Q

Keynesian model

A
  • principle of effective demand: output determined by demandside
  • output determines employment
  • unemployment can exist
12
Q

opportunity cost of A in terms of B

A

A/B

13
Q

magnitudes of Jp current-account surplus and US current account deficits…monotonically increasing 1981-9

A
  • not
  • current account surpluses/GNP declining in Jp around 1986
  • current account deficits/GNP declining in US around 1986/7
14
Q

J-curve mechanism if yen depreciates

A
  • JPY/USD rate increases leads to trade deficits SR
  • after time lag export volume increases, import volume decreases leading to surplus
15
Q

US vs. EC Jp’s trade

A
  • US more important than EC in exports and imports
    • exports Jp to US = 34.1%
    • imports Jp from US = 22.5%
  • both larger than EC
16
Q

intra-industry trade

A
  • Jp’s IIT much lower than US
  • 1987 IIT index (21 sectors) = 0.30 in Jp and 0.67 in US
  • new theories suggest that increasing number of varieties of goods increases consumer utility
  • however, if Japanese consumers don’t like foreign goods then Jp will import fewer foreign varieties
17
Q

relative wage of HS:LS workers increased in US and Mex in 80s and 90s

A

HO model predicts that relative wage of HS:LS workers in US will increase and in Mex. will decrease

18
Q

capital account balance

A

capital inflow - capital outflow

19
Q

purchasing power parity

A

unit of any given currency should be able to buy same quantity of goods in all countries

20
Q

current account balance

A

balance on goods + services + income + current transfer

21
Q

covered interest parity

A

(1+RJA)=(1+RUS)(f/s)

  • s = spot JPY/USD exchange rate
  • f = forward JPY/USD exchange rate
22
Q

classical theory of money

A
  • classical dichotomy: money and goods side separated
  • money supply cannot affect output
  • money supply determines price level
    • policy increasing money supply just causes inflation
23
Q

Keynesian theory of money

A

money and goods side not separated

output determined by interaction b/w goods and money sides

IS = investment savings (demand)

LM = liquidity money (supply)

x-axis = output

y-axis = IR

24
Q

covered interest parity equality

A

(1+RJA)=(1+RUS)(f/s)

  • LHS > RHS then demand for yen-denominated asset increases
  • value of yen increases
  • spot rate decreases
  • so LHS=RHS again