With reference to extract one, assess the likely effect of a fall in the sterling exchange rate on the UK’s deficit in the trade of goods and services. (12 marks) A fall in the exchange rate of 25% means the pound becomes weaker, this means imports are more expensive, and exports are cheaper. As a result of this, this may mean a large increase in demand for exports and a considerable decrease in demand for imports, therefore decreasing the deficit of the balance of payments in the UK as predicted. However, if the goods we are importing and exporting are inelastic, meaning they have a less than proportional response to price, an increase in the price of imports, and a decrease in the price of exports may not have a great effect on the trade of goods and services and so therefore not improve on the deficit the UK holds. As stated in extract 1, it tells us that the goods we import are not made in the UK and so makes it impossible to replace the imports, therefore meaning that we still have to import goods, despite the high prices due to the low exchange rate of sterling.
However, pensioners will be hit hard because the extra income they earn from saving will have dramatically reduced, making them worse off. On the other hand, savers may leave the pound for better interest rates in other countries (hot money), causing a fall in the demand for the pound. As a result the value of the pound will fall, making exports cheaper and there will be an injection of net exports. In conclusion, the impact of loose monetary policy will be beneficial to the economy because extra consumption and investment will cause AD to increase which will increase economic growth. However, it takes a long time for changes in interest rates to feed through to consumption and investment and by then the economy may have gotten worse.
Individuals are losing jobs and the government have to spend more money of benefits. They collected back less from taxes and VAT. Businesses are cutting back on productions but for some customers is good if they have money because the prices are falling as well as inflation. At the boom stage the GDP (Gross Domestic Product) are the values of
One of the problems is that it reduces the funds available for businesses to invest. People are attracted to high interest rates and the security of investing in the government which attracts them use their savings and profits to buy bonds. However, money spend on the government is one fewer dollar for investments. Crowding-out effect is caused because of loss of funds for private investment due to government borrowing. It hurts and slows down economic growth.
Economic costs of deflation- deflation has proved to have several economic costs, the main cost is that it encourages differed expenditure where people’s expectations change and they delay spending in the hope of getting a better deal. This then results in a decrease in AD causing business revenues to fall and confidence to decrease delaying business investment and cutting costs, i.e. increasing unemployment, all of which could slow economic growth and force a recession as evidenced in the 1930s depression. Additionally deflation increases the real value of debt leading to
They can compare their cash flow forecast with the actual situation shown in the statement. If you look back at their forecast on page 71, you will see the received more cash inflows in December than they expected - £16,700 rather than £16,300. Their cash outflows were just a little higher (mainly due to spending more on wages than forecast). As a result, their cash outflows for the month were only £20 higher than their inflows. Consequences and solutions to cash flow problems Factor | Why It Causes a Cash Flow Problem | Low profits or (worse) losses | There is a direct link between low profits or losses and cash flow problems.
So each country has different currency, for example country A currency is 2 bills to our United States currency B which equals a dollar. So if we trade with country A we would get more for our dollar then country A would get less for their currency. The factor of inflation is a country that has consistently lower purchasing power like country A. This can cause higher interest rates for that country. Another influence is what they hold in a current account could be considered a deficit which means the country is spending more on foreign trade than it is receiving.
The economy is considered to be very unstable at the current time, and it is the duty of the United States government to do everything in their power to once again stabilize the once booming economy for the sake of the entire country and its citizens. Current Unemployment Rate Currently unemployment rates in the United Sates are a less than desirable 7.9%. Although, this number has decreased by 2.1% from its peak in recent years, it is still believed that there is a long way to go. Prior to the recession unemployment rates fluctuated between 4% and 6% (www.bls.gov, 2012). This increase in the unemployment rate is having considerable impacts on the economy.
The less expansion, the less inflation. However, if the economy is slowing down, interest rates will decrease. This allows banks and businesses to borrow more cheaply, which results in them being able to higher more workers and produce more goods. The monitoring of inflation is very important in the US. Inflation has many negative affects.
The people who were spending money were the poor more often than the rich; the poor were getting poorer and the rich were essentially becoming richer because even though there was no money to make, they were not spending. In the 1980s and 90s, economists argued that the Federal Reserve had caused banks to decrease their willingness to loan money, which lead to a severe decrease in consumption and in investment because no one had any money to spend. (Szostak 2003). Many people also blamed Hoover for the recession. Hoover was the president at the time.