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POS160 Week 5 Notes (part 2)

by: Alexandra Notetaker

POS160 Week 5 Notes (part 2) POS160

Marketplace > Arizona State University > Political Science > POS160 > POS160 Week 5 Notes part 2
Alexandra Notetaker
GPA 3.5

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About this Document

These notes cover Monetary Policy
Global Politics
Dr. Reed M. Wood
Class Notes
POS160, political science, global, Politics, classnotes, notes, study
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This 2 page Class Notes was uploaded by Alexandra Notetaker on Tuesday September 13, 2016. The Class Notes belongs to POS160 at Arizona State University taught by Dr. Reed M. Wood in Fall 2016. Since its upload, it has received 5 views. For similar materials see Global Politics in Political Science at Arizona State University.

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Date Created: 09/13/16
POS160 MONETARY RELATIONS  Monetarypolicy:  Governmentpoliciesinfluencing macroeconomicconditions:  Unemployment  Inflation  Economicgrowth  Involvesmanipulation ofinterestsandexchangerates  ExchangeRates:  The price ofaNationalcurrencyrelative toother nationalcurrencies  Appreciation:when thedollargoesup in value  Depreciation:ifitgoesdown invalue  Effectsofexchangerate fluctuations  Appreciation:costofexportedgoodincreasesandleadstolowerforeign demandfor goods  Depreciation:costofgoodsdecline andleadstomoreexportedgoods  Influencesimportersandexportersdifferently  CurrencyValues  Determinedbythesupply/demandofacurrency  Moredemand=higher value  Lessdemand=lower value  Exchangesystemeffectsvalue  Chooseanother currency(Ecuador usesUS $)  “Fix/Peg”currencyvalue toanother currencyor preciousmetal(gold/silver)  Allow currencytofloatin open market  Interestratesinfluence exchange rates  Higherinterestrates=moreprofitable for people toputtheir moneyin acountry  i.e.Investorsneedacurrencyin order toinvestin acountry  greaterdemandfor currency  higher currencyvalue  Higher interestrates=greatercurrencyvalue  Currencyappreciation leadstomoreexpensive exportsandlessexpensive imports  Lessdemandfor US goods  Foreign goodsarecheaper  Lower inflation& higher standardofliving  GoldStandard(1860-1930)  Mostmajoreconomieswereon aclassicalgoldstandard  Benefitsofusing gold:  Economicprice stability  Long-termgrowth (rarelydevalues)  Preventsinflation  Costsofusing gold:  Reducesflexibilityin monetarypolicy  Hardertoprintmoney  Lesscontrolofinflation andunemployment  Short-termprice volatility  Bretton WoodsMonetarySystem(1945-1973)  Fixedbutadjustable rates  Governmentsfoxedcurrencyvaluesfor long periodsoftime butpermittedsomechanges  Post1973  Floatingexchangeratesdominate  Majorcurrenciesfloat  Otherstates“Peg”nationalcurrencytocurrencyofanother state (China,Pakistan pegged toUS dollar)  Fixedor Float–Government decides  Fixedexchange rate:provide stabilityandfacilitate internationaltrade andinvestment  Reducescontrolofmonetarypolicy  Cannotadjustfixedrates  Floating exchangerate:offermorefreedom  Governmentcan changethe exchangerate  Manipulatevalue viainterestrates  Can maketrade andinvestmentmore difficult  Currencyvalue becomesvolatile  Investorsmaybe scaredaway  Capitalflightduring economiccrisis


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