Essay Paper on Macroeconomics: Discussion Questions
The whole principle of comparative advantage explains the way how trade could actually benefit all parties that are involved. That could be countries, regions, individuals and others. That works as long as they produce goods with different relative costs. The benefits of such an outcome are known as gains from trade. So it is easy to understand that comparative advantage is a key economic concept that should be learnt in the study of trade.
There are various levels and fluctuations in the exchange rate and, as a result, they exert a strong impact both on imports and exports, and the trade balance. The fact is that a high and rising exchange rate always tends to depress exports, to increase import and to deteriorate the whole trade balance, as long as these variables respond to price stimuli. Consequently, consumers find foreign goods cheaper so the consumption composition changes. And as a result, different firms decrease their costs by purchasing intermediate goods abroad.
It is normal to differentiate nominal exchange rates from real exchange rates. First rates that were mentioned, nominal exchange rates, are established on currency financial markets that are known as “forex markets”. Those are similar to stock exchange markets.
There is one more classification of exchange rates that is based on the number of various currencies taken into account. Bilateral exchange rates evidently relate to two currencies of the countries. As a fact, they are mostly the effects of matching of demand and supply on financial markets or in banking transaction.
Fiscal policy and monetary policy have some similarities, one of which is the stabilization of the economy. However these policies use different strategies. Although many economists may disagree about which particular way is more profitable or substantial, most economists recognize the advantages of using fiscal and monetary policy for the prevention of drastic inflation or depression in country’s economy…
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