Outline and describe five factors which determine the international value of a currency in a floating exchange rate system.

Outline and describe five factors which determine the international value of a
currency in a floating exchange rate system.

Question 4 [Total: 25 marks]
‘Money is not everything. But in the past governments have seemed to forget this.
Success has been measured by economic growth – GDP – alone. Delivering the best
possible quality of life for us all means more than concentrating solely on economic
growth.’ (T. Blair, 1999)
(a) Using appropriate diagrams, distinguish between actual economic growth and
potential economic growth. [10 marks]
(b) To what extent an increase in a country’s GDP confirms an improvement in the
quality of life? [15 marks]
Question 5 [Total: 25 marks]
(a) Explain and evaluate how an expansionary fiscal policy works in theory during a
recession. [13 marks]
(b) Discuss four practical problems in applying discretionary fiscal policy.
[12 marks]
Question 6 [Total: 25 marks]
(a) Outline and describe five factors which determine the international value of a
currency in a floating exchange rate system. [15 marks]
(b) ‘Floating exchange rates automatically adjust and eventually eliminate balanceof-payments
deficits or surpluses’. Illustrate and explain this statement.
[10 marks


 

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