Using the Data and Your Economic Knowledge

Using the data and your economic knowledge, evaluate the possible consequences for UK macroeconomic carrying out if the euro ara and the US seek to reduce their balance of payments deficits on reliable account. The four major objectives are (i) full employment, (ii) bell stability, (iii) a high, barely sustainable, rate of economic harvesting, and (iv) keeping the Balance of Payments in equilibrium.If a awkward is suffering from inflation and a balance of payments deficit, it is usually because the government is expenditure too much. In such circumstance, the Fund agrees to lend the country nearly transitional funds, providing the government agrees to reduce its deficit and slow growth in the money supply That should raise the value of sterling, reduce the price of imports, and reduce demand for UK goods and services abroad.However, the impact of engage rates on the exchange rate is, unfortunately, seldom that predictable. Changes in spending feed through with(predicate) i nto output and, in turn, into employment. That can affect wage costs by changing the relative balance of demand and supply for weeers. alone it likewise influences wage bargainers expectations of inflation an important consideration for the eventual settlement. The impact on output and wages feeds through to producers costs and prices, and eventually consumer prices.Some of these influences can work more quickly than others. And the overall effect of monetary policy leave behind be more rapid if it is credible. But, in general, there are quantify lags before changes in interest rates affect spending and bringing decisions, and longer still before they affect consumer prices. Cutting the interest rate, make savers to move their money from UK banks to other banks, this leave alone cause a repay in demand for pounds and so a depreciation in the currency.This will and then make UK exports seem cheaper abroad, and therefore increase the level of exports as we have greater int ernational competitiveness on price But there are certain draw backs, such as Savers are not garunteed to respond to a cut in the interest rate. and therefore the value of the pound may be unaffected? Lowering the interest rate will increase borrowing and expenditure, including increased expendiiture on imports therefore increasing the Balance of Payments deficit