uusinjsh Posted April 1, 2011 Report Share Posted April 1, 2011 I am putting the finishing touches to my IA, however, I wanted to make sure I got two thos right* In case of inflation price level goes up thus money loses its purchasing power, since 1$ will buy less than before* There is bigger demand for money because of the reason stated above, to build, let's say, house, I'll need more dollars than before* High price level is bad for export since price level of US, which will increase in comparison to other countries, will be relatively higher* High willingness to import goods from US will rise the exchange rates due to high demand for US goods Reply Link to post Share on other sites More sharing options...
Summer Glau Posted April 1, 2011 Report Share Posted April 1, 2011 For your second point, it's not really a higher demand for money in general, but usually for loans from banks, etc.For your fourth point, if the US goods are more expensive due to the increased general price level, why would other nations want to import goods that are more expensive? Since the US goods are more expensive now, foreign importers will not want to buy as many goods from the US. Therefore they would not want to exchange their currency for US dollars (to purchase the imports) . Then the demand for the US dollar would decrease, so the exchange rate would be lowered. Reply Link to post Share on other sites More sharing options...
uusinjsh Posted April 1, 2011 Author Report Share Posted April 1, 2011 Yes, however, according to data, US growth is really slow, so the price level will exceed those of other countries only in long term. So, exhange rates will rise first, discouraging other countries to import US goods PLUS at some point of USA recovery the price level will be higher as well. This is not about price levels being higher at the moment, it's about them RISING thus lowering the import. I mean, even if it's not higher, but still rising, the export will still drop in comparison with 2008? I mean "Oh, now their PL is, let's say, not twice as low as ours, but only 1,5 times lower. Not profitable to import as much as before, but we will still import goods." Hope you got my idea and it is not totally wrong Reply Link to post Share on other sites More sharing options...
Summer Glau Posted April 1, 2011 Report Share Posted April 1, 2011 I get it now, thanks for clarifying Make sure you explain that in your IA or the grader may get confused with your analysis. After you explained it it made sense Reply Link to post Share on other sites More sharing options...
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