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Need a lil' help with an essay... (1 Viewer)
- Thread starter chrome
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tWiStEdD
deity of ultimate reason
i believe you refer to an increasing exchange rate when compared to the US$. at any rate, you have to think about currency as effected by market forces. i.e. supply and demand. draw the SS and DD curves. Remember, the supply of $AU is more or less limited, almost creating a vertical SS curve.
now, you need to remember the theory in relation to interest rates. put simply, the cost of money is interest rates, and hence both the price of money (interest) and the value of our money (or buying power if you will) will have a direct effect on one another.
As the american dollar gets weaker, ours gets stronger, or so goes the trend. to illustrate this, I have one shirt, which represents $AU, and one pair of jeans, $US, costing 10 units and 20 units respectively. if i sold my jeans, i could get 2 shirts. yay for me! but if i sold my shirt, i would not get one pair of jeans.
BUT
if my shirt goes up to 20, and my jeans down to 10, then the cost of my shirt has increased, yes. simple economics tells us that less people will buy it, as it is too expensive (aka less competitive)
EFFECTS
- Importers love it, because we can import more for less! YAY!
- Exporters hate it. why? competition. if we cannot compete on a global scale, then our GDP decreases and therefore our standard of living goes with it.
- Interest rates may decrease due to surplus $AUD (correct me if i am wrong on that point)
- there is potential for us to experience deflationary pressures as our dollar goes further, through decreasing price of M.
- perhaps unemployment as a result of a contraction in the X market, which there is a lot of potential for in the long term.
- stunted economic growth (X's decrease)
DISCLAIMER
Given the right set of circumstances, the effects could be far more positive. Economic theory is just that, and can be argued any number of ways.
that's all i have
good luck
EDIT: Added disclaimer and changed a reference to M which i typoed as I... bad jargon!
now, you need to remember the theory in relation to interest rates. put simply, the cost of money is interest rates, and hence both the price of money (interest) and the value of our money (or buying power if you will) will have a direct effect on one another.
As the american dollar gets weaker, ours gets stronger, or so goes the trend. to illustrate this, I have one shirt, which represents $AU, and one pair of jeans, $US, costing 10 units and 20 units respectively. if i sold my jeans, i could get 2 shirts. yay for me! but if i sold my shirt, i would not get one pair of jeans.
BUT
if my shirt goes up to 20, and my jeans down to 10, then the cost of my shirt has increased, yes. simple economics tells us that less people will buy it, as it is too expensive (aka less competitive)
EFFECTS
- Importers love it, because we can import more for less! YAY!
- Exporters hate it. why? competition. if we cannot compete on a global scale, then our GDP decreases and therefore our standard of living goes with it.
- Interest rates may decrease due to surplus $AUD (correct me if i am wrong on that point)
- there is potential for us to experience deflationary pressures as our dollar goes further, through decreasing price of M.
- perhaps unemployment as a result of a contraction in the X market, which there is a lot of potential for in the long term.
- stunted economic growth (X's decrease)
DISCLAIMER
Given the right set of circumstances, the effects could be far more positive. Economic theory is just that, and can be argued any number of ways.
that's all i have
good luck
EDIT: Added disclaimer and changed a reference to M which i typoed as I... bad jargon!
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