Economics Cafe

[...] price elasticities of demand for exports and imports must be greater than one. A fall in the exchange rate will lead to a rise in the price of imports in domestic currency. When the price of imports [...]

[...] currency and an increase in the supply of domestic currency resulting in a fall in the exchange rate. When this happens, domestic goods and services will become relatively cheaper than foreign [...]

[...] The exchange rate of a currency is the rate at which the currency can be exchanged for another currency. It is [...]

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[...] the difference between current prices and base-year prices in the balance of payments and aggregate demand. The Marshall-Lerner condition states that for a devaluation of domestic currency to improve [...]

[...] increase in consumption expenditure and investment expenditure will lead to an increase in aggregate demand resulting in an increase in national output. Further, an increase in national output will [...]

[...] Why have many economics teachers misunderstood the Marshall-Lerner condition? The reason is that they do not fully understand the difference between current prices [...]

[...] national income of Singapore is $1000 (100 x $10). Assuming that the exchange rate of the Singapore dollar against the Malaysian Ringgit is RM2.50/S$1. Further assume that the Singapore dollar [...]

[...] to exchange for or purchase 1 Singapore dollar. It is important to note that the exchange rate of a currency is expressed as the amount of [...]

[...] expenditure, investment expenditure, government expenditure on goods and services and net exports. Unlike the balance of payments where the values are measured at current prices, the values in [...]

[...] become relatively cheaper than foreign goods and services which will lead to an increase in net exports and hence aggregate demand. To understand quantitative easing, we need to have a deeper [...]

[...] and services in the two countries. Therefore, the real exchange rate is a better indicator of net exports. When the real exchange rate falls, net exports will rise, other things being equal. The [...]

[...] and aggregate demand. The Marshall-Lerner condition states that for a devaluation of domestic currency to improve the balance of payments, the sum of the price elasticities of demand for exports [...]

[...] money inflows will fall and hot money outflows will rise. When this happens, the demand for domestic currency will fall and the supply will rise which will lead to a fall in the exchange rate. A [...]

[...] which will not affect the result. Assuming that Singapore produces only one good, let’s say economics textbooks. Further assume that the quantity of economics textbooks produced in Singapore is 100 [...]

[...] in the banking system. The level of interest rates in the economy varies directly with interbank rates, particularly the interbank overnight rate known as the Singapore overnight rate in Singapore [...]

[...] it is never linked to aggregate demand. As a side note, do you think that the demand for economics tuition is price elastic or inelastic in Singapore? And what do you think about the income [...]

[...] In 2013, about 91% of Singapore-Cambridge GCE ‘A’ level students taking economics tuition at Economics Cafe were awarded a distinction. The result is one of the best in Singapore and [...]