1. Module The Foreign Exchange Market KRUGMAN'S MACROECONOMICS for AP* 42 Margaret Ray and David Anderson

2. What you will learn in this Module : The role of the foreign exchange market and the exchange rate The importance of real exchange rates and their role in the current account

3. Understanding Exchange Rates Understanding Exchange Rates Foreign Exchange Market Exchange Rates Appreciate Depreciate US $JP ¥€ $1.00194.20.7479 ¥10.01061.0079 €1.001.337125.61

4. The Equilibrium Exchange Rate The Equilibrium Exchange Rate FOREX follows laws of supply & demand Equilibrium Exchange Rate

5. Inflation and Real Exchange Rates Inflation and Real Exchange Rates Real Exchange Rates Nominal Exchange Rates Real Exchange Rate and the Current Account Current Account - The difference between a nation's total exports of goods, services and transfers, and its total imports of them.

6. Purchasing Power Parity Purchasing Power Parity Purchasing Power Parity (PPP) Big Mac Index Nominal Exchange Rates and PPP

7. Table 42.1 Exchange Rates, April 30, 2010, 9:40 A.M. Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

8. Figure 42.1 The Foreign Exchange Market Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

9. Table 42.2 Equilibrium in the Foreign Exchange Market: A Hypothetical Example Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

10. Figure 42.2 An Increase in the Demand for U.S. Dollars Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

11. Table 42.3 Effects of Increased Capital Inflows Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

12. Figure 42.3 Real versus Nominal Exchange Rates, 1990–2009 Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

13. Figure 42.4 Purchasing Power Parity versus the Nominal Exchange Rate, 1990–2008 Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

14. Unnumbered Figure 42.1 Low-Cost America Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers