chapter 14 da sequel Flashcards
How does the effect of changes in an weakened exchange rate feed into macroeconomics objective such as inflation
Inflation is likely to rise due to higher import prices (cost-push inflation) and there is also an argument
that increased demand for UK products (due to lower export prices and higher import prices) means that
there will also be demand-pull inflation.
how could unemployment fall due to the weakening of changes in the exchange rate
Unemployment could potentially fall due to export-led growth although rising inflation may lead to a
wage-price spiral that ultimately makes unemployment worse
how would the current account deficit reduce due to the weakening of the changes in exchange rate
The current account deficit would expect to reduce as the UK exports more and imports less although
again this depends on the price elasticity of imports and exports. If the UK continues to import at higher
prices and exports the same at lower prices, the current account deficit could get even worse.
How is economic growth effected by weakening of changes in the exchange rate
Economic growth would be expected to rise due to export-led growth but as previously stated, this
is dependent on the impact of inflation on the economy.
