Exchange Rates
Name 3 Types of Exchange Rates
Fixed, Floating, and Managed Exchange Rates
What are the three types of taxes
proportional taxes, progressive taxes, and regressive taxes
What is the area at which the J-Curve begins to curve upwards?
When the Marshall-Lerner Condition is fulfilled
What does a point inside of the PPC diagram represent?
It represents an output that is obtainable but not utilizing the resources efficiently and hence, undesirable
What in a current account may lead to downward pressure on the exchange rate
A deficit; this is known as a current account deficit
What is a way in which the Government can Intervene to change/alter exchange rates?
Any of these two: They can use their currency reserves to buy or sell foreign currencies, or change the interest rates on investments
Name 4 of the Economic Well Being Indexes
Happiness Index, Happy Planet Index, Human Development Index, Human Poverty Index, and OECD Better Life index
Where does the J-Curve begin?
In a deficit
Name the 3 categories of resources
Land, Labor, and Capital
What is the balancing item
The balancing item serves to adjust for the challenging task of accurately recording every foreign transaction.
What is 1 pro and 1 con of high exchange rates?
Pro: Downwards pressure on inflation, increased imports and improved domestic producer efficiency. Con: Decrease in exports, damage to domestic industries
What is the difference between intragenerational social mobility and intergenerational social mobility?
Intragenerational social mobility: The ability to move from one income level to a higher income level within their lifetime
Intergenerational social mobility: The ability of a person to move to a higher level of income than their parents
What does the J-Curve display?
It shows the change in current account balance over time, after the devaluation of a country’s currency.
Name 3 determinents of demand
Possible Answers: Income, price of substitutes, price of compliments, tastes, future expectations, number of buyers/population
What is the difference between equality and equity?
Equality means each individual or group of people is given the same resources or opportunities. Equity recognizes that each person has different circumstances and allocates the exact resources and opportunities needed to reach an equal outcome.
What is 1 pro and 1 con of low exchange rates?
Pro: greater employment in the export industries and domestic industries. Con" increased inflation due to higher prices for imported goods
What are proportional taxes AND what are they also sometimes called what?
A proportional taxes is one in which all income levels pay the same percentage of income in tax; sometimes called a "flat tax"
What are 2 ways to correct a current account deficit on the J-Curve?
Any 2 of these: Reducing expenditure, switching expenditure, or supply side policy
Give an example of 2 possible factors that could cause an increase shift in the supply curve within an economy
Possible Answers: cost of factors of production decreases, new technology, Government intervention (subsidies), increase in the number of sellers, future expectations that the price will fall for this product in the future
Governments attempt to correct current account deficits through what three ways?
efficient supply, competitive export markets, and keeping domestic industries competitive
Name 3 reasons why the floating exchange rate may change
Any of these: Increase in demand of the other country's currency, Increase in income in the country, change in taste for another country's goods, increase in investment prospects, increase in interest rates, future expectation
(there is an exact answer; literally a quote): What is the Sustainable Development Goal #1 (SDG1)?
“End poverty in all its forms everywhere.”
What happens to fulfill the Marshall-Lerner Condition?
When the absolute sum of a country's export and import demand elasticities is greater than one
Define Inferior Good, and describe what happens to the quantity purchased of inferior goods when your income goes up
Inferior goods: Goods you buy when you can't afford your preferred product, and when your income rises, you will buy less of the inferior goods
Name two structrual factors and two cyclinal factors that cause current account surpluses?
Structural factors that cause current account surpluses:
- Long-run competitive advantage in producing certain products (ex: South Korea and electronics)
- Households may have high savings ratios (marginal propensity to save)
- Significant increase in the prices of a country’s main exports (ex. oil)
- A country may have high levels of improved productivity and research and development funding
Cyclinal (short-term factors) that cause current account surpluses:
- Currency depreciation causes increased exports
- Increase in foreign consumer demand in a country’s main export markets
- Cyclical improvements in the global economy leading to increased demand and higher prices
- An increase in net income flow