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Economic Development of Central America Econ. 4200 - Spring 2004 – Dr. Taylor - page 18 / 153

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Demand side - People who want to import Costa Rican goods, invest in Costa Rica, or travel in Costa Rica, or others who just want to hold colones.

(1) When North Americans demand more Costa Rican products, (D curve shifts right) the price of the colon will rise in terms of dollars.

-Supply side - those who want to import goods into Costa Rica from the United States, invest in the US, travel in the Us or hold US dollars.

(2) When Costa Ricans demand more US cars or computers (S curve shifts right) the   price (in $) of the Costa Rican colon will tend to decline (S of colon shifts r)

AAppreciation and depreciation of a currency:

WWhen country A's currency becomes more valuable relative to country B's, country A's currency is said to appreciate relative to that of country B … and country B's currency is said to depreciate relative to that of country A.

Note: Two countries in the region use the US dollar as their national currency … what are their names (colon, balboa)? Why do you think they have adopted our currency?

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