exchange rate and deficit Flashcards

1
Q

How are contractionary Fiscal policy and budget surplus linked?

A

Both are used in a boom and contractionary Fiscal Policy leads to a budget surplus

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2
Q

What is meant by the term budget (or fiscal) surplus?

A

Is when government spending is less than taxation

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3
Q

What happens to the exchange rates when interest rates rise?

A

The £ appreciates because there is greater ‘hot money flows’ due to the higher interest rates.

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4
Q

What is meant by the term Stagflation?

A

Is an economy that is stagnant (not growing) but is also suffering from inflation

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5
Q

Balance of payments deficit

A

The amount by which the sum of the balance on the current account and the balance on the capital account is negative in a year

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6
Q

Balance of payments surplus

A

The amount by which the sum of the balance on the current account and the balance on the capital account is positive in a year

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7
Q

Exchange rate

A

The rate at which the currency of one nation is exchange for the currency of another nation

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8
Q

Flexible or floating exchange rate system

A

A rate of exchange determined by the international demand for and supply of a nations currency

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9
Q

Fixed exchange rate system

A

Rate of exchange that is prevented from rising or falling with changes and currently supplying demand

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10
Q

Depreciation

A

A decrease in the value of the dollar relative to another crazy, so I dollar buys a smaller amount of the foreign currency and therefore of foreign goods

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11
Q

Appreciation

A

An increase in the value of the dollar relative to another crazy, so a dollar buys a larger amount of the foreign currency and therefore of foreign goods.

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12
Q

Currency intervention

A

A government buying and selling of its own currency or foreign currencies to alter international exchange rates

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13
Q

Rate of exchange

A

The price paid in one’s own money to acquire one unit of a foreign currency; the rate at which the money of one nation is exchange for the money of another nation

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14
Q

International monetary reserves

A

The foreign currencies and such assets as gold Anisha me used to settle up payments deficit

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15
Q

Currency intervention

A

A government buying and selling of its own currency or foreign currencies to alter international exchange rates

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16
Q

What is meant by the term budget (or fiscal) deficit?

A

If government spending is greater than taxation

17
Q

Define Quantitative Easing.

A

Is the Central Bank increasing the money supply and using these electronically created funds to buy government bonds.

18
Q

When was quantitive easing introduced to the economy?

A

March 2009

19
Q

What happens to the balance of payments as interest rates rise?

A
  • Worsens
- Because Cost of production for firms increase so then they might reflect this cost increase onto the consumers in the form of prices, making UK exports less competitive globally
- Appreciation of the pound causes the level of imports to increase (SPICED) (Strong Pound Imports Cheap Exports Dear)
20
Q

What happens to exchange rate when interest rates rise?

A

Readers Question: Interest Rates are increased by the governments to bring down inflation rates, this makes exports price competitive as well, as a result, exports increase. However, an increase in interest rates can lead to an appreciation of the currency as demand for the currency increases.2 Jun 2017