costs/benefits of depreciating the pound

Cards (7)

  • 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.