Global economic

PPP = Purchasing Power Parity
price of a basket of goods should be roughly same in all country

P= Price
B= Basket of goods
$= dollar
d= duby

P_B_$/P_B_d = $/d

Change in its price will change the currency rate
Inflation = weaken $ values
Inflation is the primary driver for currency rate
Inflation has a monetary policy, relate with M1 & M2

1. change of money rate > change of GDP = Inflation
2. Low Fed Interest Rates

Fisher Effect:
i = r + I

i = Nominal interest rate
r= Real rate
I= Expected inflation

fed raise real estate significant high to attract investor it can strenghtening currency value while inflation

equity= earning interest on something u aren't pay for. ex. buy house as the value of it raise.

Ch.10

International monetary system
Y=C+I+G+NX
"Follow the money"

usa will not manipulate their currency, they let the market decide the price point.
however other country China manipulate their currency to lower its values so that their products are cheaper to have an trade export advantage.

ex. Sony, the cost of 1 yen strenght it cost 300mil dollar to them.

arguement against manipulate currency: Foreign Reserve account "keep pile of gold, yen, currencies" use reserve to defend their currency

Usa defense against japan by weaken its own dollar, and the price of japan import become more expensive, making its less attractive. End of currency manipulation.

Competive evaluation.