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That is to say that, if and were constant or growing at equal fixed rates, then the inflation rate would exactly equal the growth rate of the money supply. An opponent of the quantity theory would not be bound to reject the equation of exchange, but could instead postulate offsetting responses (direct or indirect) of Q {\displaystyle Q} or of V ...
In a floating exchange rate system, a currency's value goes up (or down) if the demand for it goes up more (or less) than the supply does. In the short run this can happen unpredictably for a variety of reasons, including the balance of trade, speculation, or other factors in the international capital market. For example, a surge in purchases ...
Since market exchange rates fluctuate substantially, when the GDP of one country measured in its own currency is converted to the other country's currency using market exchange rates, one country might be inferred to have higher real GDP than the other country in one year but lower in the other.
When export prices increase faster than import prices, the country’s revenue goes up, as does the demand for the nation’s currency. As more people want to buy the currency, the value increases.
The equilibrium price in the market is $5.00 where demand and supply are equal at 12,000 units; If the current market price was $3.00 – there would be excess demand for 8,000 units, creating a shortage. If the current market price was $8.00 – there would be excess supply of 12,000 units.
The concept of an excess demand function is important in general equilibrium theories, because it acts as a signal for the market to adjust prices. [2] The assumption is that the rate of change of the price of a commodity will be proportional to the value of the excess demand function for that commodity, eventually leading to an equilibrium state in which excess demand for all commodities is ...
In this case, the imports of one country are the exports of the other country. For example, if a country exports 50 dollars' worth of product in exchange for 100 dollars' worth of imported product, that country's terms of trade are 50/100 = 0.5. The terms of trade for the other country must be the reciprocal (100/50 = 2).
Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it ...