ECON 1116 Lecture Notes - Lecture 21: Absolute Advantage, Economic Equilibrium, Comparative Advantage

• School: Northeastern University
• Department: Economics
• Course: ECON 1116
• Professor: All

Document Summary

Terms of trade: once you establish comparative advantage; it is matter of how much does each good cost you. 3 exchange rate regimes fixed: equilibrium price does not change; central bank intervention; if running out of reserves they will devalue the currency and then maintain new exchange rate. In fixed, currency is either devalued or revalued flexible: no central bank intervention; can inhibit trade; trade is more risky but the currency can change exchange rate. Mixed/managed float rate: set up upper level and lower level and as long as the exchange rate moves within the boundaries there is no intervention with central bank: this is what u. s has. Many countries have their currencies fixed to another currency such as a dollar. What determines exchange rate: speculators help keep exchange rates from getting out of whack/have a smoothing effect (more effective than progressive acts) Balance of payment: current account, capital/financial account. Transfer of rights of patents, transfers of money,