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    Whats the difference between the nominal and real exchange rate?

    And can someone briefly explain why the philips curve doesn't work.

    Thanks
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    (Original post by meep...exams :S)
    I dunno bout evaluation though
    X-M is a very small component of AD.. so the shift inwards of AD would be marginal.

    Correct evaluation?
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    (Original post by All at once)
    Whats the difference between the nominal and real exchange rate?

    And can someone briefly explain why the philips curve doesn't work.

    Thanks
    With exchange rates - Real exchange rates are just nominal exchange rates adjusted for inflation in the economy.
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    (Original post by newlife)
    With exchange rates - Real exchange rates are just nominal exchange rates adjusted for inflation in the economy.
    Relative inflation between countries
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    SO are you guys revising for EMU?
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    (Original post by All at once)
    And can someone briefly explain why the philips curve doesn't work.
    We don't see the correlation anymore - the UK is said to be in an era of 'low inflation and low unemployment' - because of supply-side policy, advancements in tech, etc.
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    What does fall in uk competiveness lead to in the economy? (Apart from lower economic growth and current account deficit)
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    (Original post by Apricott)
    SO are you guys revising for EMU?
    I think its best to revise for everything and EMU will help with trading blocs and globalisation etc
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    (Original post by Wish)
    What does fall in uk competiveness lead to in the economy? (Apart from lower economic growth and current account deficit)
    Could lead to a consequent fall in the exchange rate as exports fall, demand for sterling falls. As this happens speculative flows begin to leave the country further reducing the demand for sterling thus a depreciation.

    But the overall effect leads back to slowing economic growth.
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    (Original post by Wish)
    What does fall in uk competiveness lead to in the economy? (Apart from lower economic growth and current account deficit)
    Unemployment.

    (Original post by Apricott)
    SO are you guys revising for EMU?
    Revise everything. Gambling with exams is stupid.
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    (Original post by Wish)
    What does fall in uk competiveness lead to in the economy? (Apart from lower economic growth and current account deficit)
    Fall in competitiveness leads to:

    - Fall in price level (As AD falls)
    - Fall in output and employment (Again, as AD falls)
    - Worsened current account deficit
    - Depreciation of the pound
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    can someone explain why the pound is overvalued? what does that mean... i remember my teacher saying how the pound is overvalued by about 40% against the dollar and thus doesnt hold true for Purchasing Power Parity..
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    (Original post by Sports Racer)
    We don't see the correlation anymore - the UK is said to be in an era of 'low inflation and low unemployment' - because of supply-side policy, advancements in tech, etc.
    How does advancements in technology keep inflation/unemployment down? If technology is more advanced, surely you have the a greater possibility of labour - capital substitution?
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    (Original post by newlife)
    Fall in competitiveness leads to:

    - Fall in price level (As AD falls)
    - Fall in output and employment (Again, as AD falls)
    - Worsened current account deficit
    - Depreciation of the pound
    Actually depending on the extent of the fall in competitiveness hun the price level will increase.

    As production costs increase due to low productivity therefore price of goods will increase. If unemployment increases then output will also fall as costs are too high Loss in output will mean a fall in AS. Thus if AS falls below or at a faster rate than AD inflation will occur thus rise in price levels. AD may only fall slightly as as X-M is only a small proportion of AD however a consequent fall in consumption due to higher prices will lead to a much bigger fall in AD

    But its unlikely prices will fall, quite the opposite.
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    (Original post by chidona)
    How does advancements in technology keep inflation/unemployment down? If technology is more advanced, surely you have the a greater possibility of labour - capital substitution?
    No, because I'm referring to ICT and transport costs. Sorry if it was a bit vague.
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    (Original post by Yasmin2K8)
    Actually depending on the extent of the fall in competitiveness hun the price level will increase.

    As production costs increase due to low productivity therefore price of goods will increase. If unemployment increases then output will also fall as costs are too high Loss in output will mean a fall in AS. Thus if AS falls below or at a faster rate than AD inflation will occur thus rise in price levels. AD may only fall slightly as as X-M is only a small proportion of AD however a consequent fall in consumption due to higher prices will lead to a much bigger fall in AD

    But its unlikely prices will fall, quite the opposite.

    I half see your logic but im unsure. A fall in competitiveness would mean greater preference over imports and less exports, thus AD shifts inwards. From a diagramatic analysis the price level falls.. theoretically. However we all know that although price level wouldnt fall as such, but it would surely form deflationary pressures on the economy.

    However im not fully sure if im right or if you're right. anyone else wana give thoughts?
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    i'd be so happy on of the essay questions was about tariffs/quota's/protectionism came up
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    (Original post by bballer4life)
    i'd be so happy on of the essay questions was about tariffs/quota's/protectionism came up
    Protectionism came up last year so id think its less likely. Balance of payments deficits and cures/Non renewable resources/competitiveness for me
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    (Original post by newlife)
    I half see your logic but im unsure. A fall in competitiveness would mean greater preference over imports and less exports, thus AD shifts inwards. From a diagramatic analysis the price level falls.. theoretically. However we all know that although price level wouldnt fall as such, but it would surely form deflationary pressures on the economy.

    However im not fully sure if im right or if you're right. anyone else wana give thoughts?

    in the exam, id agree with your simple point, as thats the obvious point.
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    true but i understand Yazmin's point too... although a fall in competitiveness may not lead to a fall in AS in my view, i cant explain why... its difficult (maybe in just crazy to think like that )
 
 
 

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