Week 4 Discussion:
Discussion. While the video provides a reason why a country may want to manipulate the value of its currency, doing so is usually a violation of the free trade rules for fully floating currencies. The Chinese Yuan is a managed float currency, while the US Dollar is fully floating. You will examine these terms this week.
Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu.
Watch Video: Discussion
(Macro) Episode 33: Exchange Rates https://www.youtube.com/watch?v=xwtgByffoUw
This week we are going to look more globally and examine exchange rates.
An exchange rate is simply the price of one currency in terms of another currency. In other words, how many US Dollars does it take to buy one British Pound? Remember that an exchange rate ALWAYS involves two currencies which means two countries. Review in detail, the three Exchange Rate presentations before you start your work on this week’s discussion assignment.
The Exchange Rates Part I, II and III PowerPoint presentations are attached.
While they are conceptually simple, many economic factors go into the determination of exchange rates. And exchange rates influence many of the prices you pay in the store, they influence the number of jobs in the export sector of the economy and they even impact the price of a cup of coffee.
Many people believe that a “strong” US Dollar is critical to the strength of the US economy. A “strong” dollar means one that can buy a goodly amount of a foreign currency. But does a “strong” dollar really benefit the US economy? And if so, in what ways? And in what ways does it harm the US economy? Review the PowerPoint presentation: Exchange Rates Part III before continuing with the week’s discussion.
Now we are ready to examine how exchange rates are set and what the impacts on the US economy from a “strong” dollar versus a “weak” dollar actually are.
Assignment Summary: Discussion
1) Watch the above video and study the three Exchange Rate PowerPoint presentations;
2) Read the article in the textbook: “Is a Strong Currency Always in a Nation’s Interest?”, page 692-693 (Week 4.attached), the article is the same in both the 7th and the 8th editions, only the art work is different.;
3) Go to the X-Rates Web site (http://x-rates.com) and find the current:
- a) exchange rate for the US Dollar (USD) and any other country’s currency that you wish to study – you can select the same country that you are using for your research project, (unless it is the Peoples’ Republic of China). Do NOT select the Chinese Yuan as your other currency since it is not a freely floating currency;
- b) then from the icons below the currency selection boxes, select Graphs and then select 1 year;
- c) based on the 12 months of data, which currency is appreciating (gaining value) and which is depreciating (losing value)? Remember it can do both in a year.
- d) Now go to the CIA World Factbookhttps://www.cia.gov/library/publications/the-world-factbook/
and find out what goods and products the country you chose exports.
4) Since most all of the goods that you buy are either imported or contain inputs from other countries, what do the trends in the exchange rates you examined tell you about the prices you can expect to pay for goods imported from the country you choose or for products that use inputs from that country (i.e., the exports of your country)?
In a global economy most, products contain materials from other countries and that includes food. If you had orange juice today, it may well have come from Brazil. Your computer and your cell phone contain parts from America or Japan or Taiwan or Thailand or one of the European countries or from all of these places. Thus, exchange rates directly impact the prices you pay for goods. This is your chance to learn more about how that works.
5) On this paper, share your findings about whether the currency of the country you chose(Brazil) is appreciating or depreciating relative to the US Dollar.
- What do you think this means for American imports from your country (Brazil)?
- What do you think it means for American exports to your country (Brazil)?
- Refer to at least two different concepts from this week’s Chapters. (Key Concepts for this week’s chapter are attached)Your illustration of the concepts MUST include an explanation why you think they are relevant to the week’s topic using specific information from the articles, PowerPoint presentations, videos and other research that you have done. Remember to include citations and references as needed.
6) I have attached Weeks 1, 2 and 3 papers regarding Brazil as a source of information.
7) Remember to document all use of sources by using citations and references. These should be in APA format. Please review Plagiarism Power points (PLAGIARISM.ppt attached) and be sure to provide references (APA.ppt attached), including URLs where appropriate, to all works that you cite.
Week 4 – Key Concepts: Discussion
Chapter 32– trade policy, p. 688 capital flight, p. 690
Chapter 33 – recession, p. 702, depression, p. 702 model of aggregate demand and
aggregate supply, p. 706, aggregate-demand curve, p. 706, aggregate-supply curve, p. 707
natural level of output, p. 714, stagflation, p. 730.
Chapter 34 – theory of liquidity preference, p. 739, fiscal policy, p. 747, multiplier effect, p. 748
crowding-out effect, p. 751, automatic stabilizers, p. 758.
Chapter 35 – Phillips curve, p. 764, natural-rate hypothesis, p. 772, supply shock, p. 774
sacrifice ratio, p. 777, rational expectations, p. 778.