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  |
looks like you did your homework buddy, i am Double Major Psychology + Econ...
I am sure the US dollar will go back in up value in the LR, theres always been a baseline for the currency to which it is more stable, i guess you could blame Bush's fiscal policies in that regard with all the excessive spending in Iraq (i find it funny and sad at the same time how Bush wants to spend billions to rebuild Iraq but still hasn't finished rebuilding New Orleans), A'stan, trade deficits, national debt, etc...
one more thing i have to add, because the USD is decpreciating, it causes other currencies that is pegged to it to deprecieate as well (ex. Hong Kong Dollar, Malaysian Rigget) just to name a few, this is one reason why the depreciated USD can affect world wide currencies values
fyi, China's national reserve is well over $1 TRILLION USD now, and most of it is American currency...