<p>Haha yeah. Just making sure no one misunderstands my intentions, lol. I agree. I think you can also look at how the question flows. First they ask you what will happen to exports. THEN they ask you what will happen in the market for the US dollar.</p>
<p>Referring to your second to last post, You can pay for U.S. goods with the Won or any other currency, this is why we have exchange rates in the first place; so money doesn’t become worthless in the international market. The point of the international market is for countries to increase the relative worth of their money so they can buy more goods with less of their own currency.</p>
<p>The main thing about the inflation reducing the price is that while decreasing inflationary rates reduce prices in the U.S., it is not necessarily the case once you conduct exchange rates. The purchasing power of the dollar would increase causing more Won needed to pay for the same amount of goods. The situation would stay constant and then the exchange rate would change due to the dollar being worth more or less. The dollar would appreciate causing South Korea to need more Won to pay for the same amount of U.S. goods. Thus, South Korea will reduce the number of exports they order.</p>
<p>By the way, I completely agree with Capitalamerica, no argument intended on my part just discussing how I approached the question and why I believe I am right. Even if I am proven wrong, well then I learned something in the process</p>
<p>@jimmyboy23 Hm. Well, I guess that’s what I get for self-studying when it comes to foreign exchange. The same book (Crash Course) states this:</p>
<p>“The demand for any particular currency represents the quantity of the currency demanded at a series of exchange rates in particular period of time by those holding other currencies who may wish to buy goods, services, resources, or real or financial assets from the country whose <em>currency is demanded</em>.” That’s why I focused mainly on a country being paid with its own currency.</p>
<p>Anyway, I think the thing that I don’t have clear is the relationship between purchasing power and prices. I understand that there is an inverse relationship between the two. However, didn’t you previously assume that the prices are sticky? Therefore, an increase in purchasing power doesn’t necessarily equate to a rise in prices in the short run. So it doesn’t necessarily mean that more won is needed to pay for the same amount of goods than before. (I feel like this entire thing just contradicts itself, though, because inflation = rise in prices so maybe I’m just that tired.)</p>
<p>Even if it did, I’d think of it like this: though US goods will require more won to pay for the same amount of goods, the higher inflation rate of SK means that SK goods will require even MORE won than US goods do, no? </p>
<p>I feel like I’m mixing everything up now because I’m having trouble even following my argument. x.x</p>
<p>I believe prices are sticky downward meaning they don’t decrease easily and they are more inclined to increase. This is why prices keep going up but rarely ever go back down. Same trend your grandfather talks about when he says he used to buy bread for a nickel. I would have to check back and see what I was talking about and thinking about, but I believe I was saying that the sticker price of U.S. goods wouldn’t be affected to much while the exchange rate is changing. So a car would cost $20k before and after the exchange rates are established. Then the exchange rate takes place; it takes more won to pay for the same goods. So, instead of paying 500k won for this car now they have to pay 750k won which is why they would want to reduce the exports because it is less favorable.</p>
<p>Also, inflation like I said before does not necessarily mean an increase in prices, that comes as a result of a change in the purchasing power of money and may not even occur at all.</p>
<p>@capitalamerica
Didn’t read all of your initial post with your answers but I disagree with (f)
An equal increase of 100bil in gov spending and +100bil on taxes will result in real gdp still increasing because the spending multiple > tax multiplier. <– (what I put on test) Hopefully my brief explanation about the multipliers was enough for full credit</p>
<p>Issue is discussed more on this page:
<a href=“http://www.oswego.edu/~dighe/lstum12.htm”>http://www.oswego.edu/~dighe/lstum12.htm</a>
Ctr+F “equal increase” </p>
<p>@hogzzz I may have misinterpreted that question because I was put off by the wording and wasn’t sure what it was asking for. That explanation indeed makes sense; I just thought that they switched from spending to receiving revenue, forgetting that they were using the tax revenue for government spending. Oh well. :'c </p>
<p>5 Steps to a 5 also said that exports would increase, so that’s what I put.</p>
<p>For (f), Real GDP increases as @hagzzz said. </p>
<p>@hagzzz Completely agree
@Awflapjackz the main thing I see is that Dollar appreciates and stronger dollar leads to lower U.S. exports. The only thing I have heard that might have validity is that it might not happen in the “shortest of short runs” but at that point it becomes splitting hairs and I don’t think AP would ever make that kind of distinction.</p>
<p>@Capitalamerica
“Therefore countries with lower inflation rates tend to see an appreciation in the value of their currency.”
<a href=“Factors which influence the exchange rate - Economics Help”>http://www.economicshelp.org/macroeconomics/exchangerate/factors-influencing/</a>
“When the Canadian dollar appreciates relative to the Euro, the Canadian dollar becomes less competitive. This will lead to larger imports of European goods and services, and lower exports of Canadian goods and services.”
<a href=“Currency appreciation and depreciation - Wikipedia”>http://en.wikipedia.org/wiki/Currency_appreciation_and_depreciation</a></p>
<p>What if both answers can be right, depending on how you justified it?
Just a thought. </p>
<p>That’s possible; usually AP has a “right” answer but if they see a lot of people correctly justifying another answer they will add that to a list of acceptable responses.</p>
<p>So did the level of required reserves stay the same for the second frq???</p>
<p>@yankees7210 </p>
<p>Many people are saying that the lvl requried reserves only depends on the demand deposits, I believe, and so since the bond money are not deposits the lvl of reserves would stay the same. However, when I consulted my teacher on the question she said that the lvl would increase because reserves increasing and thus lvl of rr and er would both increase. This is coming from a brief read of the google doc from more than a few days ago. Feel free to correct any inaccuracies. </p>
<p>Somehow I pulled off a 4. Pleasantly surprised.</p>