Macro year 2 Flashcards

Question

What factors influence a countries terms of trade in thhe short term?

Answer 1

The changes in aggregate price of exports or imports, so: * A change in the exchange rate - an increased exchange rate will make imports cheaper, improving the terms of trade * a change in the demand for exports - if demand increases, price should increase * if inflation is higher compared to other countries, the terms of trade is said to be higher

Answer 2

If incomes rise globally, then exports should see an increase in demand, improving the countries terms of trade Increasing productivity compared to trading partners will deteroate the terms of trade, as the price of exports will fall due to a reduction of cost

Answer 3

The price elactisity of demand of exports and imports: * if exports are price elactisic, an increase in price will lead to a proportionately larger decrease in quantity demanded, meaning an improvement in the terms of trade brought about by an increase in the average price of exports will lead to a deterioation in the balance of payments (and vice versa). * if imports are price elatistic, a rise in the price of imports will lead to a more than proportionate shift in the quantity demanded, so a deterioation in the terms of trade caused by an increase in import prices will improve the position of the current account (and vice versa)

Answer 4

An improvement in the terms of trade brought about by a fall in import prices may reduce ad (x-m), as imports are now more price competitive. Inflation will fall, as AD contracts, and unemployment may rise as labour is a derived demand.

Answer 5

A trading bloc is a group of countries which have signed an agreement to remove or reduce protecctionist policies between them.

Answer 6

A regional trade agreement

Answer 7

bilateral trade agreement - between two countries multilateral trade agreement - more than two

Answer 8

1. Peferential trading area - where trade barriers are reduced on some goods but not others 2. free trade area - when all forms of trading barriers are removed between member countries, but individual countries still maintain their own external protectionist barriers 3. customs union - where there is free trade within the trading bloc but a common external tarrif for all members on goods coming from outside the bloc 4. Common markets - custom unions where labour and capital has freedom of movement, and where there is common laws regarding the standards of goods and services traded 5. Monetary unions - where all members share a common currency. This can be a feature of any type of trade bloc

Answer 9

1. there should be free movement of labour in the union - while this is guranteed in the eu, there are barriers such as language 2. countries shoulld share a trade cycle, as otherwise monetary policy would cause problems for some countries by fixing it for others

Answer 10

Governments lose sovreignty over monetary policy, so they can no longer adjust their own interest rates. This means that if they are in a recession, but other parts of the eurozone are in a boom, the interest rates wont accurately reflect the macroeconomic climate. This is because the interest rates become subservient to the need to maintain the exchange rate, rather than its own domestic agenda

Answer 11

As the Great Recession spread to Europe, the amount of funds lent from the European core countries (e.g. Germany) to the peripheral countries such as Greece began to decline. Reports in 2009 of Greek fiscal mismanagement and deception increased borrowing costs; the combination meant Greece could no longer borrow to finance its trade and budget deficits at an affordable cost.[ A country facing a 'sudden stop' in private investment and a high (local currency) debt load typically allows its currency to depreciate to encourage investment and to pay back the debt in devalued currency. This was not possible while Greece remained in the euro. "However, the sudden stop has not prompted the European periphery countries to move toward devaluation by abandoning the euro, in part because capital transfers from euro-area partners have allowed them to finance current account deficits". In addition, to become more competitive, Greek wages fell nearly 20% from mid-2010 to 2014, a form of deflation. This significantly reduced income and GDP, resulting in a severe recession, decline in tax receipts and a significant rise in the debt-to-GDP ratio. Unemployment reached nearly 25%, from below 10% in 2003. Significant government spending cuts helped the Greek government return to a primary budget surplus by 2014

Answer 12

To allow for trading partners to take advantage of the potential gains from international trade, as per the law of comparative advantage. By reducing trade barriers, specilisation can be encouraged.

Answer 13

* Reduction in transaction costs - Removing barriers to trade, as well as non tarrif barriers, reduces the cost of trading within the EU, reducing the price of goods and services * Free trade encourages increased specialisation, and this increases output, according to comparative advantage. This specialisation also helps firms to benefit from economies of scale, causing lower prices and costs, a dynamic advantage. * As firms are now operating within a larger market, they will be more able to take advatage of economies of scale associated with high levels of production. This increases the efficient allocation of resources * Intensified competition - domestic firms will face greater international competition, which encourages firm to reduce production costs, which may eliminate x - ineffencies.

Answer 14

* loss of economic sovreignty to be able to set own policy * One dynamic loss may be the loss of resources , as the most successful countries will attract capital and labour (since both are free in a common market) and so this heightens regional inequalities as the richest countries experience faster rates of growth. Firms may set up factories etc. in the poorer countries, as labour is cheaper,and therefore this will help them to grow but will also mean that they lose the mostskilled labourers (brain drain of poland) * There is a risk of trade diversion - by creating a free trade area, it is possible that the member nations will trade with each other instead of the rest of the world, meaing trade is simply being diverted from the rest of the world to partners. This might mean that gains from free trade could be diverted from an efficient producer outside of the bloc to a less efficient producer within it. * Domestic industries may be threatened if they are unable to compete with more competitive firms from outside the trading bloc, meaning buisnesses may shut down increaseng unemployment.

Answer 15

development is the process by which real incomes are increased and inhabitants experience an increased quality of life.

Answer 16

A composite indicator of a countries level of development, which includes income, education and health. It ranges from 0-1

Answer 17

* income - GNI per capita in $ PPP * Education - both mean and expected years of schooling * Health - life expectancy

Answer 18

Mean years of schooling shows us the effectiveness of past education - it is an output measure tha shows the knowledge base of adults. In comparison, expected years of schooling shows us expectations of the inputs entering the system.

Answer 19

* health takes no notice of the quality of life that people enjoy and education doesn’t take into account the quality and success of education, only numerical time * There is no consideration for the equality of income. * Also, there are other factors which affect development, for example freedom from corruption or the environment.

Answer 20

* The inequality adjusted HDI - they adjust the components of HDI to take into account levels of inequality * Gender inequality index - measures gender disparity in three dimensions: reproductive health, empowerment, and the labor market. * The multi dimensional poverty index - includes measures of social deprivation into hdi

Answer 21

Many develooping countries rely on agricultural or commodity exports to provide incomes and emmployment. This has two key problems: * Agricultural efficency in may developing countries is relatively low, partly due to a lack of training as well as the high cost of aquiring capital. This means many workers are required to produce the same level of output, which in turn reduces the mobility of labour into other sectors. * Commodity prices are volatile, which creates uncertainty in the market, as well as meaning incomes are uncertaain and fluxuate wildly. This reduces confidence in the market, and may mean MPS increases relative to MPC. In addition, farmers in isolateed rural regions like Uganda may has asymetric information of market prices, meaning traders may undercut them - an example of market failiure

Answer 22

In the long run, the terms of trade will move against primary products in relation to manufactured goods. This is due to the relatively inelastic income elasticity of demand for primary goods (so demand will not increase by much as the world contiinues to development), but also the diminishing returns to scale faced by many primary production areas.

Answer 23

For a developing country, a key problem is th ability to produce capital goods. This occures for two reasons. One is the low levels of human capital. The other, a situation arrises where shotrage of capital limits the earning opportunities of many households, which causes low per capita income. This means to sustain an acceptable quality of life, households must dedicate much of their income to consumption rather than saving (known as a savings gap. This reduces investment into capital goods, which creates a self - perpetuating cycle. As economiic growth is partly dependent on the movement of LRAS, which repressents the productive capacity of an economy. Low levels of capital investment means the quality and quantity of factors oof production are not increasin, which limits development.

Answer 24

That economic equilibrium can only be sustained if it grows at a particular rate, given by the ratio of savings to the capital-output ratio. It is shown by the equation rate of growh = savings ratio / capital output ratio

Answer 25

If financial institutions are not properly developed. Usually banks act as the medium in which saving is translated to investment via loans for firms, but this system may not be working effectively in developing countries

Answer 26

a situation where a country's expenditures in foreign currency, such as payments for imports or servicing foreign debt, exceed its foreign currency earnings from exports or other sources, such as foreign investment or remittances. This means the country will struggle to earn sufficient foreign currency that it needs to purchsase crucial capital imports that a developing country will be limited in producing domestically.

Answer 27

When domestic investors use their monet to invest in overseas assets, as they feel they will get better returns than on donestic assets. This has the affect of reducing investment in the domestic market. This process is augmented when domestic investors invest in TNCs operating within the country but profits are repatriarted to overseas share holders.

Answer 28

A youthful population, generally, encourages economic growth. however, this depends on the resources available to the country * If a country has widespread srvices and good quality child care, a large population gives the country a demographic dividend, with an abundent labour force encourages fdi aswell as the potential of increasing human capital - shifting out LRAS as the productive capacity of the economy increases. * However, if the country does not have access to resources, than a boom in population size will increase dependents as well as put strain on scarce resources, increasing poverty - If population grows by 5%, the economy needs to grow by 5% to even maintain living standards.

Answer 29

Countries who experience high levels of debt must use public finances and export revenues to pay off debt to (usualy) western countries, rather than investing in development programs.

Answer 30

Infrastructure is incredibly expensive to construct, and will be under provided for in a free market. service infrastructure such as healthcare and education is needed to maintain quaity of life and development, while transportation and ict infrastructure is needed to attract inward investment of TNCs, as a lack of it makes trading and operating more expensive and reduces the comparative advantage of a country.

Answer 31

Human capital is needed to be able to use capital goods efficiently. A well educated population makes FDI more attractivr, as well as creating higher income opputunities. However, in a lot of developing countries, families have imperfect information about the benefits of education for their children - many children are forced to work instead of being in school, reducing the productive capacity of the economy in the long run.

Answer 32

A lack of property reduces debt availability as commercial banks require coleteral on loans.

Answer 33

* corruption - tax revenues and aid may be used for private use, whcih hinders developent progress. * conflicts - disastourous for growth. Damages to infrastructure aswell as mortality limits productive capacity. It diverts funding away from developmental goals. If a governent does not expect to be in power for very long it has no incentive to fund development projects * physical geography - landlocked countries such as uganda have no access to sea ports, so can not take advantage of containerisation. This makes investment into the country less attractive as transportation and start up costs will increase

Answer 34

o trade liberalisation o promotion of FDI o removal of government subsidies o floating exchange rate systems o microfinance schemes o privatisation

Answer 35

Removing trade barriers will mean that domestic industries either close or are forced to become as efficient as other world producers. Resources will be allocated to their best use where the country has a comparative advantage. This also decreases the price of goods and services for domestic consumers, increasing consumer surplus. If other countries remove barriers in return, the country can export new goods and services. However, by opening a country up to external competition, domestic industries may be unable to compete with more effecient foreign firms, making the country more reliant on imports and exacerbating the foreign currency gap.

Answer 36

* FDI provides an injection of capital investent into the economy, which may reduce the difficulties developing economies experience in gathering enough savings to increase the production of capital goods, and help to fill the savings gap (LINK TO HARROD-DOMAR MODEL). * TNCS are also likely to invest in developing a countries human capital, which will make workers more efficient, contributing more to economic growth. * TNCs can provide a secondary sector jobs in urban areas, helping to diversify the economy and provide jobs to keep up with a rapidly expanding labour force * Positive mulitplier effect * increased tax revenue * gains in foreign exchange

Answer 37

* Loss of economic sovreignty * TNCs can have devistating affects on the enviroment - 2008 oil spils in nigeria from shell. This reduces living standards of the local community * TNCs may use tax avoidance stratergies, limiting the benefits they have on givernmental finances * TNCs may repatriate its profits to foreign shareholders, meaning a large proportion of imports go overseas in a form of economic leakage.

Answer 38

reducing government intervnetion, either through removing subsidies or privatising state owned buisnesses, encourage firms to become more efficient as they face more competition - organisational slack/x-ineffencies will no longer be subsidised through tax payers money. In addition, subsidies often distort the market mechanism. However, if an important industry relied on government subsidies, it may go bust, increasing unemployment and reducing the investment it was making into the economy

Answer 39

These schemes aim to give poor and near-poor households permanent access to a range of financial services , including loans, savings, insurance and fund transfers. It is used to refer to loans from providers known as microfinance institutions (MFI) who deliver small loans to unsalaried borrowers, such as ‘Opportunity’. They take little or no collateral and use group lending, pre-loan saving requirements and an implicit guarantee of access to future loans if present loans are repaid fully and promptly. It allows borrowers to invest in their businesses or start up new ones. The scheme tends to target groups who would be less likely to otherwise receive loans, for example women. However, It has become a method of financing consumption spending and unemployment means that most people do not have the funds necessary to ensure repayment of their loan

Answer 40

o development of human capital o protectionism o managed exchange rates o infrastructure development o promoting joint ventures with global companies o buffer stock schemes

Answer 41

In developing countries, human capital is abundent and cheap compared to physical capital, but a lack of skills means this potential is often not realised. Education and training helps to raise agricultural productivity, and to provide a skilled labour force that enables the growth of the modern sector economic activity such as manufacturing or finance. healthcare can also raise productivity by reducing absenteeism. However, an extensive education must be set up for this to be effective, which is incredibly costly due to the issues of governments in developing countries collecting enough tax revenues.

Answer 42

Protectionism allows domestic industries to grow by keeping foreign goods out and protects them from strong competition. They can use a policy of import substitution, where they deliberately attempt to replace imported goods with domestically produced goods by adopting protectionist measures. This will create jobs in the short run and will allow the industry to develop, perhaps to the extent where the barriers can be removed. However, it means countries lose out from the benefits of specialisation and comparative advantage and could cause inefficiency, since domestic producers suffer from a lack of competition. Other countries are likely to retaliate, and domestic producers will not experience economies of scale so can not competete against tncs

Answer 43

Makes your exports more internationally competitive, increasing demand for exports and helping to develop domestic industries as well as proviidng a supply of foreign currency. However, there must be sufficient ability for export industries to grow to match the increase in demand, resulting in resources being withdrawn from other areas.

Answer 44

In commodity markets, prices are very volatile, supply and demand can often shift to the left and right. This reduces the willingness for producers to invest in increasing productivity as there is uncertainty over levels of future returns. A buffer stock scheme is where the government buys excess supply from glut years and releases those brought stocks when supply is low. Therefore, the price level is maintained. However, buffer stock schemes can distort market signals. In addition, if the agreed price for the buffer stock scheme is too high, the government will have to buy significantly more during gluts than it will during bad harvests - overtime, the size of the government stocks will continue to hgrow, increasing costs and becoming unsustainable.

Answer 45

Infrastructure increases the effeciency of communication and transport, making firms more productive, as infrastructure compliments both human and phyiscal capital, which makes them more productive by allowing them to produce at their maximimum output. Investment also makes FDI more attractive, as a country with better infrastructure makes the area more attractive to star up operations as no further investment is needed to increase infrastructure. Infrastructure also boosts rural connections, which can reduce regional inequalities. Infrastructure tends to suffer from the free rider problem and has very high capital costs , making it unlikely the private sector will develop it. However, a government in a LIC will be unlikely to have the fiscal dividend to invest using their own resources, so may have to rely on foreign investors (Belt and road initative). This, in the long run, will make the country dependent on a another country - a form of economic neo-colonialism.

Answer 46

One way to reduce the exploitation of countries as a result of FDI would be to set up a joint venture. The government may insist that firms setting up production plants in their country find a local partner to create a jointly owned company with. This will help to keep some of the profits generated within the country , which can be used in investment. There is likely to be a mismatch in the authority in the partnership, with the TNC having much of the power Tata Starbucks Pvt.Ltd is a joint venture company with Starbucks in India

Answer 47

The agricultural sector in developing countries is characterised by under-employment - factors of production, whilst in use, where not being used in the most efficient way. Due to the large rural populaiton in developing countries, this excess supply of labour was significant. The lewis model suggests that labour at the margin of agriculture could be transfered to industrial sector whilst not reducing agricultural output, as the remaining workers in the primary sector would be able to take up the slack. This creates economic growth, and help the Harrod-Domar model through the reinvestent of profits

Answer 48

* Human capital may lack the skills to effectively transfer to the secondary sector * if urbanisation is rapid, urban infrastructure will not be able to keep up with the growing population, often creating shanty towns which reducequality of life * If industrialisation is dependent on foreign TNCs, they may simply repatriate their profits to foreign shareholders rather than reinvesting them * the neglection of the primary sector will mean rural productivity remains permantly low, possibly hightening regional inequalities.

Answer 49

Fair trade is a scheme which offers producers a fair price for their product, as well as other promises (no child labour, enviromentaly friendly). Using the power of the consumer increases the bargaining power of the small producer could potentially improve the distribution of the of the gains of production and improve rural development in isolated regions who may have represent information failure as they are not recevieng a fair price for their good, possibly due to a lack of knowledge of market conditions. Some argue fiartrade provides an incentive for a good which does not provide a stable income, distorting the market signal by reducing the incentive of producers to move towards a market with better long term prospects

Answer 50

The income elastic nature of tourism means that as the global economy grows, demand for the industry will increase even further, allowing the developing country to continue development. However, it also means that they will suffer in times of recession. ● Tourists represent a source of foreign currency, which will fill the currency gap. so countries will be able to fund their imports without negative consequences. However, holidaymakers’ demands for products from their home countries mean that the tourism industry is associated with an increase in imports and so may not help the foreign currency gap at all. ● Countries are likely to attract investment from transnational hotel companies, who will also bring knowledge with them. It can help to fund improvements in infrastructure, as tourism requires reliable electricity, airports, clean water etc. and so the government have an incentive to provide this. This investment will have a multiplier effect through the economy. ● Jobs are created locally since the tourism industry relies on low skilled workers who know the local area, rather than to high skilled workers which may be sourced from abroad. It is very labour intensive. ● The government will see higher tax revenues due to higher income and higher profits. It can provide funds to allow countries to diversify

Answer 51

However, the industry is seasonal and involves low skilled, low paid jobs which means the effect of the multiplier is limited. Tourism destinations can go in and out of fashion , meaning some areas will see a loss of employment and that investment may only receive a short-term return. ● A large amount of wealth created will be withdrawn as TNCs repatriate their profits , causing problems involving capital flight. ● On top of this, the country can suffer from a large number of externalities, including pollution, waste, environmental damage and impact on culture.

Answer 52

Aid is good in the short term, mainly at providing immediate assistence to help those in asbolute poverty or after a natural disaster. However, in the long run, aid is less effective as it can create a dependency culture, by removing the incentives to develop industries further. It can also be less effective due to government ocrruption.

Answer 53

When an influx of aid causes the currency to appreciate, which reduces international competitiveness and therefore reduces exports, possibly hampering economic growth.

Answer 54

Some countries, such as Saudi Arabia, Norway and Australia, were able to develop because of an abundance in natural resources. The development of a primary industry provides funds to allow a country to diversify as well as allowing infrastructure development and better education. ● However, primary products are volatile and primary product dependency causes many issues. Primary industries also suffer from corruption. ● The government can address the Dutch Disease , for example in Norway the government uses some of its oil revenues to invest overseas and this increases supply of their currency, depreciating it and helping other industries to compete overseas.

Answer 55

* Protection of infant industries - domestic idustries that need protection from international competition in the short run as it establishes it self and learns to be competitive (to expand and benefit fro economies of scale * Protection of jobs - if domesrtic industries lose out due to international competition, some industries may close and this will create structural occupational unemployment * Dumping - when a country or company with surplus goods sells these goods off to other areas of the world at very low prices, harming domestic producers in those countries. The government may need to intervene to protect domestic producers who are unable to compete with firms that are willing to make a loss. China is frequently accused of doing this with steel * domestic industries may not be able to compete against countries with very low labour costs / regulation * There is a danger that overspecilisation makes the country vulnerable to supply side shocks (over reliance) * To improve a countries terms of trade or current account

Answer 56

* free trade and liberalisation is often done at the expense of developing nations, as they are unable to compete with developed nations * The argument is based around factors of production being relatively immobile, which is increasingly not the case in an ever globalisaing world **Ha-joon chang** argues tha protectionism can be beneficial for developing countries as a means of developing their industries free from excessive international competition

Answer 57

A tax imposed on imported goods

Answer 58

consumers ● There are higher prices for consumers as they are unable to buy imports at the cheaper price. It tends to raise the price of domestic producers since goods and services needed for the production of these goods may also suffer from import controls and it limits the competition for domestic producers so they have less incentive to be efficient. ● Moreover, they suffer from less choice. Producers * domestic producers benefit as they are able to sell more goods at a higher price, gaining producer surplus. * However, in the long run they will have little incentive to be x efficient and will struggle to compete in the international market Government * Increased tax revenues that can be used for development purposes Living standards * living standards worsen as the implentation of protectionist policy creates deadweight welfare loss equality * tariffs are generally regressive as lower socioeconomic groups have a much higher marginal propensity to import workers * in theory, workers should see a rise in employment as firms are kept in buisness, though this is not seen tohappen irl.

Answer 59

where buyers and sellers meet to trade financial assets

Answer 60

1. To facilitate savings - allows people to transfer their spending power from the present to the future. It can be done through a range of assets, such as storing money in savings account and holding stocks and shares. 2. lend to businesses and individuals - allows consumption and investment. They are sometimes referred to as a financial intermediary 3. facilitate the exchange of goods and services by creating a payment system. Central banks print paper money, institutions process cheque transactions, companies offer credit card services and banks and bureau de changes buy and sell foreign currencies. 4. provide forward markets - firms are able to buy and sell in the future at a set price, for example if a farmer wants to sell the crop they are growing at a guaranteed price in a month’s time. The forward market exists for commodities and in foreign exchange and helps to provide stability. 5. provide a market for equities (company shares). Issuing shares is an important way for companies to finance expansion but people would be unlikely to buy shares if they were unable to sell them on in the future. Financial markets provide the ability for shares to be sold on in the future, making the asset more appealing.

Answer 61

* durable * portable * divisible * hard to counterfit * widely accepted * holds value

Answer 62

* Medium of exchange - prevents a double coincidence of wants * store of value - can be used now and in the future (inflation somewhat challenges this) * Unit of account/measure of value * method of defered payment

Answer 63

An account measuring the transactions between the residents of a country and the rest of the world.

Answer 64

1. Current account - transfers in goods, services, as well as primary income (employment income earned from abroad, profits, dividends), and secondary income (aid, government grants and remitinces) 2. Financial account - The financial account shows transactions associated with changes in the ownership of financial assets. This includes FDI, Portfolio investment, Reserve assets, loans etc... 3. Capital account - the acquisition or disposal of non-produced, non-financial assets, such as patents, copyrights and the transfering of assets due to migration (this is the smallest part of the balance of payments)

Answer 65

If a country is in a defecit in the current account, it has to find a way of financing this debt. Therefore, it will sell financial assets to finance this debt. conversely, if a country has a surplus on the current account, they will use this surplus foreign currency to purchase foreign assets.

Answer 66

* A lack of competitiveness - The productivity of a country determines the the cost and quality of making a good at home. This impacts the demand for exports of goods and services. * Inflation - If inflation is high in the home country relative, the exports will increase in price relative to the world, encouraging imports. * Rapid economic growth - 'sucking in of imports' if living standards are rapidly increasing, consumers may demand more imports

Answer 67

* Exchange rate changes - If an economy is running a persistent current account defecit, a currency devauluation/depreciation is likely to increase exports and decrease imports. A fall in the value of the curreny makes domestic exports relatively cheaper for foreign countries, while having the opposite effect on imports. This is an **expenditure switching policy** * Deflationary policies - Policies to reduce domestic inflation and thus make exports more internationally competitive * Expenditure reducing polcies - by reducing consumption in the economy, for example by raising interest rates or increasing taxes, this will reduce the imports demanded by consumers. This will work if MPM is high, and the economy is operating on the inelastic section of lras * Supply side policies - increase productivity, decrease unit labour costs, increasing quality of products, this will make exports more internationally competitive. * Protectionism

Answer 68

The value of one currency in terms of another

Answer 69

As to purchase a foreign good, a consumer must convert their currency into the currency of the country they are buying from. So, for example if a uk buyer brought a french good, they would sell their pounds (increasingthe supply of the pound) whilst also buying Euros (increasing the demand of the Euro)

Answer 70

When the $/£ rate is low, British goods and services are relatively cheap for Americans, so exports will be in high demand and thus Amercians will be demanding lots of pounds. And vice versa

Answer 71

As when $/£ is high, UK residents will demand more imports as they are relatively less expensive, and thus will be supplying their pounds to buy American dollars.

Answer 72

A system in which the government of a country agrees to fix the value of a currency (or 'peg' it to) another currency, usualy the US dollar.

Answer 73

A system where the exchange rate of a currency is determined entirely by market demand and supply

Answer 74

* A change in relative interest rates - if interest rates are relatively high compared to the rest of the world, the uk would attract hot money inflows as foreigners want to save in the uk due to higher reward for saving, to do this they need to buy pounds, so demand increases * speculation - if investors believe a short term rise in the pound is imminent, they may purchase pounds to try take advantage of this shift - a somewhat self fufilling prophecy * AN increase in FDI, as foreign firms investing in the uk must do so with pounds, so will demand them * relative inflation rates - high inflation in the domestic country will make exports less internationally competitive. * amount of exports - if britain is exporting goods and services, countries have to pay for this with pounds, so demand for the pound rises.

Macro year 2 Flashcards

(103 cards)