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Essay / Research Paper Abstract
A 5 page paper discussing how governments should react to devaluation of the national currency. The government first needs to determine the standing of its balance of payments and the combined sum of the worth of price elasticities of imports and exports. If the Marshall-Lerner Condition indicates that the initial deficit in balance of trade will persist, then it needs to take further steps to protect the national economy while resisting the temptation to impose protectionist measures. Bibliography lists 7 sources.
Page Count:
5 pages (~225 words per page)
File: CC6_KSdevalue.rtf
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Unformatted sample text from the term paper:
can occur either naturally or by order of the national government, depending on whether the countrys currency is free-floating or pegged to another international currency. The very act of
devaluation is an observed effect of government policy when the currency is not free-floating and therefore changes in value according to market forces. Regardless of the source of the
devaluation, its occurrence affects subsequent government action. Theoretical Effects of Devaluation Regardless of the source
of a currencys devaluation, the effects are the same. What can be expected after devaluation is that the countrys exports become cheaper for the end consumer if all other
charges remain the same, thereby increasing demand for exports. Conversely, imports coming into the country become more expensive, reducing demand for those items (Economic Effects of a Devaluation).
The direct effect of the supply and demand relationship. When price elasticity of a good or service is low, then a dramatic increase
in its price can have detrimental effects on the national economy of the country devaluing its currency. The effect of the supply and demand relationship is greatest when price
elasticity is high. An example of inelastic demand can be found in the worldwide oil crisis of the early 1970s. Gasoline prices
at the pump more than quadrupled in price in some areas, but consumption fell very little. The capital that could have been used in other ways was dedicated to
keeping American cars fueled instead, negatively affecting the national economy. If the price of apple imports should increase to the same extent, however, demand can be expected to fall
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