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Determinants of consumption demand

Determinants of consumption demand. consumption is positively correlated with disposable income. Determinants of the current account. 经常项目 = 实际汇率，可支配收入. All are measured in terms of domestic output. Pass-through.

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Determinants of consumption demand

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  1. Determinants of consumption demand consumption is positively correlated with disposable income

  2. Determinants of the current account 经常项目=实际汇率，可支配收入 All are measured in terms of domestic output

  3. Pass-through Example 1: a large foreign firm supplying automobiles to the United States my be so worried about losing market share that it does not immediately raise its U.S. prices 10 % when the dollar depreciates by 10 %, despite the fact that its revenue from American sales, measured in its own currency, will decline.

  4. Pass-through Example 2: the firm may hesitate to lower its U.S.prices by 10 % after a dollar appreciation of that size because it can thereby earn higher profits without investing resources immediately in expanding its shipments to the United State.

  5. Short-run J-curve effect A nominal currency change will be dampened by a low responsiveness of import prices to the exchange rate.

  6. Linkage The link between nominal and real exchange rate may be further weakened by domestic price response. Question: A country’s export prices rise when its currency depreciates? Change nominal exchange rate? Aggregate demand arises

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