Quote:
Originally Posted by SE3P_to_E90
In macroeconomic terms,
The increase in the money suppy, or shift in the aggregate real money supply, increases the real US money balances... this triggers the increase in the US price level.
The increase in money supply then shifts the US dollar return (relative to the canadian dollar) schedule to the left -- causing dollar interest rates to fall. The shift in the USD return schedule then intersects expected-return-on-Candandian-Dollar" schedule at a higher point -- thus appreciating the exchange rate (USD/CanD)... as well as the decreased dollar interest rate.
The high price level and low dollar interest rate reduces the opportunity cost of holding money, hence reducing the preference to hold US interst bearing assets...
In the Long-Run (long story short), the increased price level begins to fall toward its natural rate -- since prices are flexible in the LR -- causing the dollar interest rate to rise. the increase in the USD interest rate pushes the dollar return schedule to creep back to its initial position (shift right)...
what i'm trying to say is... is, the USD will (eventually) appreciate relative to the Canadian dollar... if Bush doesn't F it up by continuously increasing government expenditures, we'll be ok  |
You forgot to throw in "Relative Purchasing Power Parity", short term interest rates - and the kitchen sink...
