Unit 7; Day 4

• Fixed/ Flexible Exchange Rates
• Flexible/Floating- based on supply and demand of currency 
• Very sensitive to business cycle
• Provide options for investments
• Fixed Rate- based on country’s willingness to distribute currency and to control the amounts
• If market appreciates, eports go down, AD/GDP decrease
• If market depreciates, exports go up AD/GDP increase
• Absolute Advantage (Video explaining the difference between absolute and comparative advantage)
• Individual- exists when a person can produce more of a certain good/service than someone else in the same amount of time (or can produce a good using the least amount of resources)
• National- Exists when a country can produce more of a good/service than another country can in the same period
• Comparative Advantage
• A person or a nation has a comparative advantage in the production of a product when it can produce the product at a lower domestic opportunity cost than can a trading partner
• Ex. output Tons per acre, mph, wpm,
• Input: Hours to do job, acres to feed, number of gallons to paint
• Specialization and trade
• Gains from trade are based on comparative advantage, not absolute