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Policy options
Expenditure Switching
costs/benefits of depreciating the pound
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Created by
sahara
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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.
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What is one benefit of switching consumption to domestically produced goods/services?
It helps improve a
deficit.
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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
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What happens to exports and imports if the pound is devalued or depreciated?
Exports
become
cheaper
and
imports
become
dearer.
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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.
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What economic concepts are associated with the effects of currency devaluation?
Marshall-Lerner
condition
and
J-Curve.
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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.
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