essay plans theme 3

Question 1

Evaluate the micro and macro economic impacts of a depreciation on a country of your choice - UK

Answer 1

KAA

• define exchange rates
• P1 - AD will rise become imports become expensive and exports become cheaper. so country exports more, imports less. X-M rises and so AD rises - growth.
• P2 - a weaker currency increases the prices of imported products such as components. this will lead to higher variable costs for producers which will lead to lower supernormal profits and investment spending.

E
- p1 - however, high prices for imports will hit households real income and therefore may cause a fall in consumption which will decrease AD.
p2 - futures markets exist for firms to hedge against currency volatility. they will be able to buy and sell at a fixed price which will not affect their costs, investments and profits.

Question 2

In the five years between 2007 and 2012 the real effective exchange rate of the Swiss franc increased by 19%, the Chinese yuan by 25% and the Japanese yen by 23%. However, the USA, UK and Eurozone experienced a depreciation of their currencies. Evaluate the micro and macro economic factors that influence the exchange rate of a currency.

Answer 2

KAA

• P1 - interest rates - increase in interest rates = better returns on savings accounts = hot money flows to take advantage of returns = increased demand for £ = appreciation in value of £
• P2 - …..

Question 3

Evaluate the micro and macroeconomic impacts of a savings gap on a low income country

Answer 3

KAA

• define savings gap (the difference between the level of savings in the economy and the amount needed for growth and development of the economy).
• P1 - harrod domar model suggests savings is needed as it provides the funds for investment. growth is dependent on the level of savings and the productivity of investment. in order to improve capital, investment is needed which requires savings. so a savings gap will worsen the development of a low income country
• P2 - micro impact - lack of dynamic efficiency. because of a low savings gap, there is low funds for investment. therefore less room for dynamic efficiency due to less retained supernormal profit. less efficiency means less output. impacts firms in the economy.

E

• a savings gap might not be the biggest issue for a low income country because other factors such as demographic issues, corruption etc will affect the economy more
• investment could be wasted. in low income countries, firms may not know the best areas to invest in due to asymmetric information and a lack of expertise. they could invest in areas of their business which will not improve their output and so it even if there was investment, it might not be entirely fruitful.

Question 4

Some developing economies such as Uganda, Nigeria and Indonesia are experiencing rapid increases in their populations whereas Germany, Italy and Japan are experiencing falling populations.

Evaluate the micro and macro economic impacts of rapid population increases on low income economies.

Answer 4

n

Question 5

Evaluate the micro and macro economic impacts to a low income country of a primary product dependency

Answer 5

j

Question 6

Evaluate the micro and macro economic consequences of a lack of property rights on a low income country of your choice

Answer 6

j

Question 7

Evaluate the micro and macro economic impacts of an improvement in human capital on low income countries

Answer 7

j