Page 451 - Krugmans Economics for AP Text Book_Neat
P. 451
section 8
Module 41 Capital Flows and the Balance
of Payments
Module 42 The Foreign Exchange Market The Open
Module 43 Exchange Rate Policy
Module 44 Exchange Rates and
Macroeconomic Policy
Module 45 Putting It All Together Economy:
Economics by Example:
International
“Is Globalization a Bad Word?”
Trade and
Finance
“You should see, when they come in the door, the shopping 85 cents. By mid -2008 it was worth more than $1.50, and
bags they hand off to the coat check. I mean, they’re just in early 2010 it’s value had fallen again, to less than $1.28.
spending. It’s Monopoly money to them.” So declared a What causes the relative value of the dollar and the
New York restaurant manager, describing the European euro to change? What are the effects of such changes?
tourists who, in the summer of 2008, accounted for a large These are among the questions addressed by open -
share of her business. Meanwhile, American tourists in Eu- economy macroeconomics, the branch of macroeconomics
rope were suffering sticker shock. One American, whose that deals with the relationships between national
family of four was visiting Paris, explained his changing va- economies. In this section we’ll learn about some of the
cation plans: “We might not stay as long. We might eat key issues in open - economy macroeconomics: the deter-
cheese sandwiches.” minants of a country’s
It was quite a change balance of payments, the
from 2000, when an arti- factors affecting ex-
cle in the New York Times change rates, the differ-
bore the headline: “Dol- ent forms of exchange
lar makes the good life a rate policy adopted by
tourist bargain in Eu- various countries, and
rope.” What happened? the relationship be-
The answer is that there tween exchange rates
was a large shift in the and macroeconomic
relative values of the euro, policy. In the final
the currency used by module we will apply
much of Europe, and the what we have learned
U.S. dollar. At its low Bloomberg via Getty Images about macroeconomic
point in 2000, a euro modeling to conduct
was worth only about policy analysis.
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