Maguire240
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Could someone please explain to me, the main difference between the two?
(Internal and external devaluation)

and if possible, help explain the advantages and disadvantages of both in terms of economic growth, unemployment and domestic inflation.

Any advice/help is very much appreciated
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gr8wizard10
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(Original post by Maguire240)
Could someone please explain to me, the main difference between the two?
(Internal and external devaluation)

and if possible, help explain the advantages and disadvantages of both in terms of economic growth, unemployment and domestic inflation.

Any advice/help is very much appreciated
Economic Growth Benefits: Potential AD increase with associated multiplier benefits. Weak currency makes domestic goods cheaper to other countries as they are able to buy more of our currency for the same amount previously. Should increase our export markets whilst putting Businesses/Consumers off from buying over seas. Balance of Trade deficit should in the Long-term reduce. One government objective being dealt with Hooraay!


Economic Growth Disadvantages: Less purchasing power on foreign goods . How about all those necessities we import :'( Firms will undoubtedly increase prices to accumulate for their newly invoked costs. Potential negative multiplier effect.


Effects on Unemployment/Inflation: Well increase AD would most likely create Jobs in the export sectors + associated benefits. Will create incentives for firms to join export markets if profits are to be made. R&D creates incentives for firms to become more efficient to compete in global markets + Accelerator effect .

Although negative effects such as observed by William Phillips theory is the trade of between increased Labour and price level when operating near productive potential. Decreased unemployment may lead to higher levels of inflation in both the short and Long term if economic agents fail to suffer from money illusion . It's dependent on Keynesian economics and where the domestic economy is at in terms of the economic cycle.
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Maguire240
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Thank you, really helpful!
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