This is a good one to get it in your brain long and short run effects. This is in PM- tell me PM and econ aren’t one in the same for half of the material this year: According to the traditional model, a decline in the value of a country’s currency: A) decreases national competitiveness in the long run and increases domestic inflation in the short run. B) increases national competitiveness in the long run and decreases domestic inflation in the short run. C) decreases national competitiveness in the long run and decreases domestic inflation in the short run. D) increases national competitiveness in the long run and increases domestic inflation in the short run.
Good morning. Another day in paradise. D.
Just brainstorming here… decline of value makes foreign currencies more expensive. More exports and less imports. Thus… increase of national competitiveness? Inflation, haven’t really got a clue but I’d think it would increase. D? I’m looking forward to the explanation. I do still have to cover PM, though…
I’m betting it takes a little time for the inflation effect, so B (and a guess since Banni hasn’t posted the answer yet!)
i’m just waking up and was letting a few more people answer. hint: never doubt blou23’s answers. we’re like zim-pink in our team study efforts, he just doesn’t have a sweatshop (we work together and i just steal him away then instead of late night house visits) and/or post as much because he’s a lock and i just try to keep up. Your answer: D was correct! Under the traditional model, a decline in the value of a country’s currency increases national competitiveness in the long run and increases domestic inflation in the short run. This will occur due to an increase in exports for the country whose currency is less valuable. In the short run the cost of imports increases for the country with the decline in currency value. So just so i get this locked down in my head- why is domestic inflation up in the short run? Long run you’ll have X > I since your stuff is cheaper, but short term you haven’t had time to up those exports so imports becoming more expensive hurts you quicker? something like that? Is this the whole J curve whatever the heck that is?
good question…hope it sticks now.
Hammer it home: What is the likely long-term impact of real depreciation of a nation’s currency? A) Decreased standard of living. B) Increased budget deficits. C) Increased competitiveness of domestic industry. D) Lower cost of imported goods.
not sure between B and C. I think C- real dep. leads to more export
A. Wouldn’t know why B. Don’t think that’s the case. C. True, your exports are cheaper for foreigners D. Not true. So C
I’m down with C.
Good work guys Your answer: C was correct! In the long run, real depreciation makes a nation’s domestic industry more competitive in the international marketplace.