costs/benefits of depreciating the pound

• What is the effect of changing consumer buying habits on imports and domestically produced goods/services?

  It switches consumption from imports to domestically produced goods/services.
• What is one benefit of switching consumption to domestically produced goods/services?

  It helps improve a deficit.
• What are the implications of changing consumer buying habits for the economy?

  • Reduces reliance on imports
  • Supports local industries
  • Improves trade balance
  • Enhances economic growth
• What happens to exports and imports if the pound is devalued or depreciated?

  Exports become cheaper and imports become dearer.
• What are the limitations of devaluing the pound?

  It will not always work and may not be feasible for many countries with a floating exchange rate.
• What economic concepts are associated with the effects of currency devaluation?

  Marshall-Lerner condition and J-Curve.
• Why might central banks' intervention in the market only slightly affect the exchange rate?

  Because they can only nudge the exchange rate in a floating exchange rate system.