Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can list the factors that shift the demand for a currency: foreign tastes, foreign incomes, relative price levels, relative interest rates and expectations. (Guide: “What shifts the demand for a currency”; Practice Q1)
- I can list the factors that shift the supply of a currency, including tariffs and quotas on the other country’s goods. (Guide: “What shifts the supply of a currency”; Practice Q2)
- I can explain why higher domestic incomes increase the supply of, not the demand for, the domestic currency. (Guide: Worked example 2(c); Practice Q1)
- I can tell a shift of a curve from a movement along it. (Guide: “From movements to shifts”)
Graphing and calculation
- I can show a shift in currency demand or supply on a correctly labelled graph and mark the new equilibrium exchange rate. (Guide: Figures 1 and 2; Practice Q6(b))
- I can calculate a new equilibrium exchange rate and quantity after a shift, and the shortage or surplus at the old rate. (Guide: Worked example 1; Practice Q5)
- I can calculate the percentage changes in the values of both currencies. (Guide: Worked example 1(d); Practice Q5(d))
Reasoning
- I can trace deficit-financed fiscal policy through the real interest rate to the exchange rate. (Guide: “Fiscal policy and the exchange rate”; Practice Q6(a)–(c))
- I can trace expansionary and contractionary monetary policy through interest rates to the exchange rate. (Guide: “Monetary policy and the exchange rate”; Practice Q3, Q6(d))
- I can explain why higher relative inflation makes a currency depreciate, using both curves. (Practice Q4)
- I can decide whether the rate change and the quantity change are certain when two shifts happen together. (Guide: “When two things change at once”; Practice Q7)
All ticked? Move on to Topic 6.5, Changes in the Foreign Exchange Market and Net Exports, or return to the course roadmap.