Quote from tj07:
Thanks.
I have a few more questions...
Strong exports push up dollar by default of Importer paying in dollars, right? Pushing up buying power of dollar, relative to that of other countries.
How does this bode for US based companies, and what role does GDP play in all of this?
What about the effect on exports when the dollar gets 'too strong' and importers go elsewhere? I guess the dollar starts to weaken.
All help appreciated.
firstly there are many errors in this post.
secondly, only in your dreams you'll find solid answers on how it actually it works..
in reality, the truth is we don't exactly know, that's because there are many factors effecting the economy. there are alot of problems with making causal inferences as -which is influencing which or what comes first? if anyone had the answer, or can have a good idea of all the factors, they can be very rich. you're basically asking how the world turns?
now in general, to give a basic answer, we say "keeping all other things equal" which means my answer is not worth anything:
strong exports don't push up the dollar. it is the foreign demand of domestic US goods that increases the demand for dollar (they need dollars to buy USD-denominated goods). but can this alone drive up dollar? NO. many other factors, - interest rate, inflation etc.
btw, when dollar is very weak, US goods become very weak, thus exporting rising (goods become cheaper for foreigners) i.e. the government may have incentives to weaken the dollar. this means exports can be strong both with a strong dollar and a weak dollar.
GDP has no play in this, it's just a measure of the economy. it's components may or may not relate directly to dollar exhange rates or domestic interest rates.
if the dollar is very strong, this makes US goods expensive to other countrys, and we would EXPECT export to weaken BUT at the same time raw materials for US producers become cheap too (so that input costs lower) i.e. total costs and prices should lower. in short, only a good economist that has taken all the relevant factors into account can have a idea of what the net-result may be.
the best place to start before asking big questions, is to think about the simple SUPPLE-&-DEMAND framework.
