Object Currency Diploma For Free

hi there in this topic video we're going to be focusing on some of the economic effects of a currency or exchange rate depreciation a depreciation of sterling for example means that the uk pound has gone down in value in the foreign exchange markets you can see this happening if you follow the green line on this chart sterling depreciated by more than 20 percent during 2008. what that means is that uh one pound buys less of a foreign currency the consequence is that uk goods and services uh being sold overseas will be cheaper when price in foreign currencies and foreign goods and services and those imports would be more expensive when priced in domestic currency terms so when the pound for example depreciates against the us dollar or against the euro it makes the price of uk imports from those countries go up and it makes the price of our exports overseas go down in theory these changes in prices will bring about substitution effects or expenditure switching effects so we might expect to see a fall or contraction in the demand for imports and hopefully an expansion in the demand for exports other things being the same a depreciation of the exchange rate represents an expansion of monetary policy in theory it should lead to an expansion of domestic output gdp it could in theory help to improve in other words reduce our country's trade deficit and it could also lead to a stimulus in the total level of domestic employment so clearly a fall in the currency can be quite important for government in helping to achieve one or more of its macroeconomic objectives because the change in the currency affects growth and affects inflation unemployment and trade let's be clear here if there's a fall in the currency other things being the same it tends to lead to an increase in inflation and that's partly because if the currency goes down the things we import our imported oil our imported foodstuffs our imported energy will become more expensive when priced in pounds and so that's likely to cause cost push inflation on the other side though a fall in the exchange rate ought to help our trade balance weaker currency makes our exporting businesses more competitive in overseas markets and if there are significant export sale increases that ought to lead to a stronger trade balance more a weaker currency other things being the same is good for growth and for jobs otherwise in exports so the fallen imports of course is a net injection into the circular flow and the higher profits and the higher output and investment in export industries could kick-start and lead to an export multiplier effect in related sectors so how do we show the effects of a currency depreciation using standard adas diagrams well let's take the first example the impact on exports the currency falls in value it makes exports cheaper overseas and depending on the elasticity of demand and other factors as well we would expect to see aggregate demand to shift outwards from 81 to 82. so you can...