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Old 25th January 2012, 12:24 AM   #1 (permalink)
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Macroecons questions PLS HELP! :( .

1. when a currency strengthens, what are the benefits?
2. when there is low inflation, what are the benefits?
3. is it true that increase in inflation leads to lower unemployment rates?
4. how does balance of payments (BOP) affect standard of living (SOL)?
5. what does general government balance mean? how does it affect SOL?
6. what are the advantages and disadvantages of a surplus budget?

my book is very ambiguous :/ i roughly know there are advantages and disadvantages but i can't point out exactly what they are. PLEASE HELP if u can! THANKS SO MUCH! .

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Old 25th January 2012, 02:17 AM   #2 (permalink)
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Re: Macroecons questions PLS HELP! :( .

Originally Posted by blacktoast94 View Post
1. when a currency strengthens, what are the benefits?
2. when there is low inflation, what are the benefits?
3. is it true that increase in inflation leads to lower unemployment rates?
4. how does balance of payments (BOP) affect standard of living (SOL)?
5. what does general government balance mean? how does it affect SOL?
6. what are the advantages and disadvantages of a surplus budget?

my book is very ambiguous :/ i roughly know there are advantages and disadvantages but i can't point out exactly what they are. PLEASE HELP if u can! THANKS SO MUCH! .
1. Your imports get cheap and it curbs inflation.
2.Higher employment rate, possible higher in real wage growth, lower costs for businesses
3.False..Lower inflation leads to near full employment in job market....read wage-inflation spiral
4,5,6.)Keynesian stuffs -> read http://www.cliffsnotes.com/study_gui...leId-9741.html

Actually, there are various school of thoughts on this issue . From Adam smith's invisible hand(Wealth of Nations) to Nash's equilibrium to most popular Keynesian's economic thoughts...some unpopular or lesser ones like maxism by Karl max and Depression Economics by famous Nouriel Roubini


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Old 25th January 2012, 08:05 PM   #3 (permalink)
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Re: Macroecons questions PLS HELP! :( .

why does the strenghtening of currency curb inflation? ._.
could u explain how does balance of payments (BOP) affect standard of living (SOL)? i haven't learnt keynsian so could u just provide a short explanation please??? .__.

PLEASEEE help and thank u for replying! .

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Old 25th January 2012, 08:24 PM   #4 (permalink)
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Re: Macroecons questions PLS HELP! :( .

SGD strengthens --> Foreigners find it more expensive to import with relative to their local goods and services--> AD for local goods and services drop --> curbs demand-push inflation

If BOP is bad, means low AD for local goods (since imports > exports). Slower EG.
Exporting industries require less labour, jobs loss.
A fall in business confidence and a decline in capital investment spending by exporting firms.
Economical Slowdown --> lower Y --> SOL drops

Just my 20c, I forgotten too much stuffs already

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Old 25th January 2012, 08:32 PM   #5 (permalink)
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Re: Macroecons questions PLS HELP! :( .

Originally Posted by blacktoast94 View Post
why does the strenghtening of currency curb inflation? ._.
could u explain how does balance of payments (BOP) affect standard of living (SOL)? i haven't learnt keynsian so could u just provide a short explanation please??? .__.

PLEASEEE help and thank u for replying! .
Hey there since you haven't learn keynesian I'll try to explain it simply if you get confused then let me know alright?

Basically for macro, there's this component called Aggregate Demand which comprises - Consumer Expenditure, Government Expenditure, Investment Expenditure, and Net exports (X-M)

So with a stronger currency, the imports get cheaper and consumers may but more imports. As such the Net exports will fall. (X) being export revenue and (M) being import expenditure. With cheaper imports, the import expenditure will increase and thus (X-M) will fall,ceteris paribus.

Since (X-M) is a component of Aggregate Demand (AD), a fall in (X-M), ceteris paribus, will cause a fall in AD and so the AD curve will shift left (the General PRice Level falls). As the GPL falls, inflation is curbed.



As for Balance of Payments, its effect on exchange rates can be explained. Under a freely floating or managed float exchange rate, when a country's BOP improves, there will be an appreciation of the domestic currency. This is due to the increase in demand for the currency or a fall in supply of that currency.

BOP basically comprises the capital account, current account and account for official financing. The capital account is basically the short and long term capital inflows or outflows (investments) while current account records the balance of trade, balance of services and unrequited transfers - such as migrants' remmitances or foreign aid to other countries.

All these make up the BOP account and so if there's a BOP deficit due to say, current account deficit perhaps the balance of trade is in a deficit because the import expenditure is more than export revenue (X-M falls). This will cause AD to fall and the real national output will fall.



So unemployment increases, disposable income of households fall and purchasing power fall. As such their material standard of living will fall as they cannot buy certain goods.



Might be a little rusty since I haven't touched it for a while But @aforl isn't it demand-pull inflation?


Last edited by Scharfschutze; 25th January 2012 at 08:34 PM.
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