nese products would increase the demand for yen to pay for the additional products; thereby causing the exchange value of the yen to rise assume to a level of 125. The monetary macroeconomic model assumes that such an adjustment occur almost immediately; thereby restoring equilibrium, as indicated in Exhibit A. The new demand for yen (Q2) causes the price for yen to increase (P2); thereby restoring equilibrium to the payments balance.
Exhibit A Exhibit B
| | demand 2 | demand 2 |
| /yen supply | / P2 | / P2 | /
| / | / P1 | / P1 | / /yen
| / | / /supply | / | /
| | | demand 1 | demand 1
|_________________________ |_______________________ Q1 Q2 Q1 Q2
yen quantity yen quantity
The Keynesian macroeconomic model assumes that an adjustment as postulated in the monetary macroeconomic model will occur over the long term, but that the immediate outcome of the increased demand may be a worsening of the situation. Thus, in the short term the yen supply may fall before beginning to rise, creating a "J curve" effect. 3. Effective market classification refers to the categorization of the elements that comprise a country's balance of payments position. The balance of payments for a country represents a tabulation of all credit and debit transactions between entities within that country, and entities in all other countries and international organizations involved. The balance of ...