Description
D1/
In a competitive industry the products that make up that industry are virtually alike. Only a few minor differences may separate one product from the other (take soap for example). In such a case one is lead to believe that consumers could chose any product and achieve the same results.
Yet, that is not the case. Consumers actually prefer some brands over others and believe the brand chosen to be superior. Why? Does advertising actually play that huge of a factor in the products we purchase? Or is something else at play?
D2/
From chapter 12 you should have learned that a nation’s macro economic policies affect currency exchange rates.
During the U.S. financial crisis of 2007 the U.S. government pursued an expansionary macro economic policy. The role of government expanded and huge sums of money was pumped into the economy. On top of that the Federal Reserve lowered interest rates to historical lows in order to create liquidity in the credit markets.
The Fed’s action of pumping $600 billion gradually into the economy was met with much skepticism from Asian and European nations. Read these articles from the Financial Times and the Economist “Currency wars,” and “Backlash against Fed’s $600bn easing.”
At the time, Germany stated the United States is forcefully lowering the value of the dollar by pumping more money into the economy and the Fed’s action is no different than China manipulating the yuan. The EU feared the U.S.’s monetary easing will put increased pressure on weak European economies (the PIIGS – Portugal, Ireland, Italy, Greece, & Spain) and cause their currencies to appreciate in relation to the dollar.
Emerging market nations (India, China, Vietnam, Thailand, and South Korea) believed the lowering of the value of the dollar would cause huge captial inflows that risked creating inflation in their economies.
Was Germany and Europe’s concerns valid? Should the rest of the world fear the possibility of the dollar being valued less than their home currencies?