Devaluation and inflation

Question 1

What is devaluation

Answer 1

Devaluation of a currency means that it has a reduced value in relation to another currency

Question 2

Define devaluation

Answer 2

Devaluation is a reduction in the value of a currency in relation to another currencies with which it can be exchanged

Question 3

What is inflation

Answer 3

• Inflation is the sustained rise in the general level of prices over a given period of time
• Inflation means that each unit of a given currency buys fewer goods and services

Question 4

What are the effects of devaluation and inflation?

Name 4

Answer 4

1. higher prices of goods and services
2. higher prices and reduced purchasing power
3. lower standard of living
4. retrenchment

Question 5

What are 4 strategies individual consumers can use to deal with the effects of inflation?

Answer 5

• produce more of their own food, home gardening
• prioritizing needs so that expenditure is reduced to only purchasing essential items
• recycling and reusing household items
• maintaining consumer durables well so that they last a long time

Question 6

What are 4 more strategies individual consumers can use to deal with the effects of inflation?

Answer 6

• offering a service locally, eg carrying out garden maintenance
• engaging in a profitable hobby to supplement income or to produce goods for their own use
• consider retraining to widen employment opportunities
• establishing a business and being self-employed

Question 7

Strategies groups and organisations can use to deal with effects of inflation

Answer 7

• provide micro-loans to assist in establishing small income-generating enterprises
• financial help also found through cooperative arrangements
• informal ways include a box, sou-sou and a partner meeting or turn
• consumer cooperative provides foodstuffs and household items at fai prices by purchasingin bulk and selling directly to members

Question 8

Explain **higher prices **as an effect of devaluation and inflation

Answer 8

• when country devalues its currency, local consumers have to pay more for imported goods and services
• locally produced goods may become more attractive
• if local goods rely on imported raw materials then price of these will go up and affect the price of the manufactured product

Question 9

Explain how purchasing power is reduced as an effect of devaluation

Answer 9

• main reason for devaluing a currency is to reduce country’s peristent losses by too much spending on imported goods and services
• local consumers’ income remains the same, they will experience a reducetion in their buying power for imported goods and goods that contain imported materials
• the money they have does not go as faf as it did before devaluation
• people who are on a fixed income which remains the same are expecially hard hit.

Question 10

Define globalization

Answer 10

Globalization is the process where the economies, cultures and societies of different nations are drawn together.

Question 11

Trade liberalisation is …

Answer 11

Trade liberalisation is the relaxation or removal of laws and guidelines regulating trade.

Question 12

What are the benefits/advantages of trade liberalisation and globalization? Name 3

Answer 12

• cheaper goods and services
• wider choice of goods and services
• more widespread use of technogy for transactions

Question 13

What are the disdvantages of trade liberalisation and globalization? Name 3

Answer 13

• due to exposure to competition
• local producers and retailers who fail to compete with either reduce their workforce or go out of business
• unemployment
• local products become unavailable, limiting consumer choice
• increased outflow of foreign exchange to purchase unrestricted imported goods may eventually result in devaluation and consequently economic hardship