exchange rate and deficit Flashcards
How are contractionary Fiscal policy and budget surplus linked?
Both are used in a boom and contractionary Fiscal Policy leads to a budget surplus
What is meant by the term budget (or fiscal) surplus?
Is when government spending is less than taxation
What happens to the exchange rates when interest rates rise?
The £ appreciates because there is greater ‘hot money flows’ due to the higher interest rates.
What is meant by the term Stagflation?
Is an economy that is stagnant (not growing) but is also suffering from inflation
Balance of payments deficit
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
Balance of payments surplus
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
Exchange rate
The rate at which the currency of one nation is exchange for the currency of another nation
Flexible or floating exchange rate system
A rate of exchange determined by the international demand for and supply of a nations currency
Fixed exchange rate system
Rate of exchange that is prevented from rising or falling with changes and currently supplying demand
Depreciation
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
Appreciation
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.
Currency intervention
A government buying and selling of its own currency or foreign currencies to alter international exchange rates
Rate of exchange
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
International monetary reserves
The foreign currencies and such assets as gold Anisha me used to settle up payments deficit
Currency intervention
A government buying and selling of its own currency or foreign currencies to alter international exchange rates
What is meant by the term budget (or fiscal) deficit?
If government spending is greater than taxation
Define Quantitative Easing.
Is the Central Bank increasing the money supply and using these electronically created funds to buy government bonds.
When was quantitive easing introduced to the economy?
March 2009
What happens to the balance of payments as interest rates rise?
- 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)
What happens to exchange rate when interest rates rise?
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
