Again useful tutor2u article:
http://www.tutor2u.net/blog/index.php/economics/comments/impact-of-a-rising#extended
Model student response: Discuss impact on UK economy of weaker pound:
In theory the weaker pound should have triggered export led growth. A weaker pound could make UK exports cheaper assuming UK inflation rates are low and stable. Cheaper UK exports assuming the Marshall Lerner condition would result in a rise in the value of Uk exports, given the demand for UK exports is price elastic. However in the short run their may have been a further deterioration in the trade deficits as UK exports sell abroad for a lower price but overseas companies are stuck in contracts with other suppliers, see the UK sterling change as only temporary or UK exports firms are unable to meet new orders. In the long term it is argues that the J curve effect will occur thus see a reduction in the UK's trade deficit and a rise in AD as the value of exports rise and imports decline triggering an export multiplier growth effect. However if the price elasticity of demand for imports is price inelastic as UK firms depend on overseas materials and components then the UK could simply suffer a deeper trade deficit plus stagflation as cost push inflation takes hold.
What do you make of this response? How could this be improved?
What if the exam question was on a stronger pound or stronger Chinese currency?
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