http://welkerswikinomics.com/blog/2007/04/25/whats-got-the-dollar-so-weak-in-the-knees/ for students and teachers of AP and IB Economics Wed, 07 Jan 2009 03:26:39 +0000 http://wordpress.org/?v=2.7 hourly 1 http://welkerswikinomics.com/blog/2007/04/25/whats-got-the-dollar-so-weak-in-the-knees/comment-page-1/#comment-81 Yihan Fri, 04 May 2007 14:14:03 +0000 http://welkerswikinomics.com/blog/?p=15#comment-81 Since the United States has such a large trade deficit, that's a sign that the dollar is overpriced. If currency exchange rates were completely floating, the dollar should have depreciated more, especially with regard to the Chinese rmb. Depreciation of the dollar would make US goods relatively less expensive to China and Chinese goods relatively more expensive to Americans, which would cause imports to decrease and exports to increase. Since the United States has such a large trade deficit, that’s a sign that the dollar is overpriced. If currency exchange rates were completely floating, the dollar should have depreciated more, especially with regard to the Chinese rmb. Depreciation of the dollar would make US goods relatively less expensive to China and Chinese goods relatively more expensive to Americans, which would cause imports to decrease and exports to increase.

]]> http://welkerswikinomics.com/blog/2007/04/25/whats-got-the-dollar-so-weak-in-the-knees/comment-page-1/#comment-78 Daisy Guo Thu, 03 May 2007 13:15:08 +0000 http://welkerswikinomics.com/blog/?p=15#comment-78 Let us consider the exchange rate between the U.S. dollar the Euro. One dollar is worth about 0.78 Euros right now. The demand for Euros in the international market is downward sloping, which implies that the quantity of the euro demanded will be greater when the dollar price is lower. This makes sense: More people and firms would want to acquire euros if they could get a lot of them for each dollar. The supply curve for euros is upward sloping, which implies that the quantity of euros supplied will be grater when the dollar price is higher. again, this makes sense: more people would be willing to part with their euros if they could get more cents for each one. The article claims that differentials in the interest rates of both nations is influencing the exchange rates between the two country's currencies. If interest rates in the US are higher (in efforts to combat inflation) then it will be more rewarding to lend money in the US. However, a european wanting to lend money in the states must first turn her euros into dollars. This increases the demand for euros. The demand curve for euros shifts to the right, resulting in a rise in the dollar value of the euros (appreciation) and an increase in the amount of euros exchanged. Or looked at from the other side, the dollar has "depreciated" vis-a-vis the euro. Let us consider the exchange rate between the U.S. dollar the Euro. One dollar is worth about 0.78 Euros right now. The demand for Euros in the international market is downward sloping, which implies that the quantity of the euro demanded will be greater when the dollar price is lower. This makes sense: More people and firms would want to acquire euros if they could get a lot of them for each dollar. The supply curve for euros is upward sloping, which implies that the quantity of euros supplied will be grater when the dollar price is higher. again, this makes sense: more people would be willing to part with their euros if they could get more cents for each one.
The article claims that differentials in the interest rates of both nations is influencing the exchange rates between the two country’s currencies. If interest rates in the US are higher (in efforts to combat inflation) then it will be more rewarding to lend money in the US. However, a european wanting to lend money in the states must first turn her euros into dollars. This increases the demand for euros. The demand curve for euros shifts to the right, resulting in a rise in the dollar value of the euros (appreciation) and an increase in the amount of euros exchanged. Or looked at from the other side, the dollar has “depreciated” vis-a-vis the euro.

]]> http://welkerswikinomics.com/blog/2007/04/25/whats-got-the-dollar-so-weak-in-the-knees/comment-page-1/#comment-75 Danqing tang Wed, 02 May 2007 14:56:05 +0000 http://welkerswikinomics.com/blog/?p=15#comment-75 Slowing inflation in the US will raise the value of the dollar, but accelerating inflation in Europe will raise the price level in Europe. Thus most US dollars will be required to purchase European goods, depreciating the dollar. Slowing inflation in the US will raise the value of the dollar, but accelerating inflation in Europe will raise the price level in Europe. Thus most US dollars will be required to purchase European goods, depreciating the dollar.

]]> http://welkerswikinomics.com/blog/2007/04/25/whats-got-the-dollar-so-weak-in-the-knees/comment-page-1/#comment-67 jenny lo Tue, 01 May 2007 14:31:31 +0000 http://welkerswikinomics.com/blog/?p=15#comment-67 slowing inflation in the US compared to accelerating inflation in the UK causes the purchasing power of the dollar to decrease because now one dollar can buy less British import. the decrease in purchasing power leads to the depreciation of dollar. Thus, the dollar has weakened relative to the Euro. slowing inflation in the US compared to accelerating inflation in the UK causes the purchasing power of the dollar to decrease because now one dollar can buy less British import. the decrease in purchasing power leads to the depreciation of dollar. Thus, the dollar has weakened relative to the Euro.

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