Methods Of Improving BOP Flashcards
Methods of improving BOP
interest rates
Buy/sell currency
Protectionism/supply side
Tight fiscal
Tight monetary
Lower interest rates
Lower interest rate
More supply of currency
Weakens the pound (S shift)
Pound weaker exports cheaper imports more expensive buy less imports sell more exports as more competitive
However Marshall Lerner and imports inelastic
Buying/selling currency
To weaken currency but more of other currencies to increase supply of currency
Supply increases which devalues the the currency
Imports more expensive exports cheaper buy less imports sell more exports
Eval need massive reserve of currency for it to be effective
Marshall Lerner
Protectionism
Imports more expensive because tariffs/quotas put in imports
Increased demand of domestic goods
Eval retaliation on tariffs and quotas
Hard to enforce, time, imported inflation
Supply side
Supply side policies to raise productivity
Supply increases which reduced inflation and makes exports more competitive
More domestic goods produced so no need to import as much
Eval imports inelastic, increases debt
Government investment
Inc subsidies or reduce income tax
Subsidies specific to export oriented markets or import replacement
Lower production costs
Price fall as costs are down
Meaning they can compete on price
Eval firms may not use for production
Reduced motivation to innovate and invest
Tight fiscal policy
Cut gov spending increase tax
Lower AD
Price reduces exports more competitive
Imports more expensive less spent on
Eval magnitude, long run, inelastic imports, Marshall Lerner
Tight monetary policy
Inc interest rates reduce QE
Less spending
Ad reduces
Price more competitive
Less spent on imports
Eval hot money
QE
Gov buy bonds through QE
Inc d for bonds
Higher bond price
Lower yield
Investors buy bonds overseas
Increase in supply of the pound
Devalues
