Foreign Exchange Rate Depreciation and Economic Growth in a Low-Income Country
TITLE
Consider the extent to which the depreciation of its foreign exchange rate contributes to the economic growth of a low💥income country.
ESSAY
Title: The Impact of Foreign Exchange Rate Depreciation on Economic Growth in a Low💥Income Country
Introduction:
💥 Briefly introduce the concept of foreign exchange rate depreciation and economic growth.
💥 Mention the significance of analyzing this impact on a low💥income country.
AO1 Knowledge and Understanding (7 marks):
💥 Explain the effect of depreciation on a country's currency, specifically the exchange rate.
💥 Discuss the relationship between foreign exchange rate depreciation and economic growth in a low💥income country.
💥 Analyze the impact of depreciation on the price of exports and imports, exploring the changes in demand and supply.
💥 Link the effects of depreciated exchange rate to aggregate demand (AD), highlighting injections and leakages that affect AD.
💥 Use AD and AS diagram to demonstrate the effects on the level of national income.
💥 Alternatively, analyze the increased injection through the multiplier effect and/or the 45° diagram.
AO2 Analysis (7 marks):
💥 Explore how the depreciation affects the balance of payments effect (X💥M).
💥 Analyze how changes in exports and imports influence the economy, focusing on injections and leakages.
💥 Connect the depreciation effect to the level of economic growth, distinguishing between actual and potential economic growth in the low💥income country.
AO3 Evaluation (6 marks):
💥 Assess the supply capacity of the low💥income country to react to the depreciation effect.
💥 Compare the supply elasticity of exports such as agricultural commodities and oil, emphasizing the implications for economic growth.
💥 Evaluate the short💥term effects on employment (positive) and inflation (negative) resulting from the depreciation.
💥 Discuss the impact of depreciation on the country's ability to service international debt, considering the currency denomination of borrowings.
Conclusion:
💥 Summarize the key points discussed in the essay regarding the impact of foreign exchange rate depreciation on economic growth in a low💥income country.
💥 Reinforce the importance of understanding the various effects of exchange rate movements on the overall economic performance.
(Note: This structure provides a clear and organized framework for your economics essay, addressing the different aspects required for each section. Make sure to incorporate relevant theories, examples, and data to support your analysis.)
SUBJECT
ECONOMICS
PAPER
A level and AS level
NOTES
Consider the extent to which the depreciation of its foreign exchange rate contributes to the economic growth of a low💥income country.
Use Table A:
AO1 Knowledge and understanding
💥 Knowledge and understanding of the effect of depreciation on the external value of a country’s currency (exchange rate 💥 ER), economic growth and low💥income country
💥 Analysis of this effect on the price of exports (X) and imports (M) and the effect on their demand and supply, links to aggregate demand (AD) through the balance of payments effect (X💥M)
💥 Candidates may refer to this in terms of injections and leakages and their effect on AD
💥 AD and AS diagram showing this may be used to show the effect on the level of national income.
💥 Alternatively, the analysis of the increased injection may be through the multiplier effect and/or the 45° diagram.
💥 A clear link must be made between the effect of the depreciation and the level of economic growth; the type of economic growth: actual or potential should be made.
Table B:
AO2 Analysis
💥 Knowledge and understanding of the effect of depreciation on the external value of a country’s currency (exchange rate 💥 ER), economic growth and low💥income country
💥 Analysis of this effect on the price of exports (X) and imports (M) and the effect on their demand and supply, links to aggregate demand (AD) through the balance of payments effect (X💥M)
💥 Candidates may refer to this in terms of injections and leakages and their effect on AD
💥 AD and AS diagram showing this may be used to show the effect on the level of national income.
💥 Alternatively, the analysis of the increased injection may be through the multiplier effect and/or the 45° diagram.
💥 A clear link must be made between the effect of the depreciation and the level of economic growth; the type of economic growth: actual or potential should be made.
AO3 Evaluation
💥 The ability of supply capacity in the low💥income country to react to the effect of the depreciation.
💥 The nature of many developing countries' exports of agricultural commodities being price inelastic in supply compared with oil exports.
💥 The short run effects on employment (positive) and inflation (negative)
💥 Beneficial effect on the ability to service international debt: positive if denominated in domestic currency but negative if borrowings are in a foreign currency.