Global Macroeconomics Policies Exam: Currency, Demand, and Supply

This assignment delves into global macroeconomic policies, examining how changes in overseas consumer preferences impact economies using aggregate demand and supply models. It contrasts the effects on countries with their own currencies versus those sharing a common currency, emphasizing the desirability of currency unions. The assignment further analyzes the elasticities model of devaluation, specifically predicting the impact of sterling's devaluation on the UK's current account balance, considering factors like interest rates, political instability, and their influence on trade and investment. The analysis incorporates relevant references to support the findings, providing a comprehensive overview of the subject matter.

GLOBAL
MACROECONOMICS
POLICIES EXAM

Table of Contents
Question: 1.......................................................................................................................................3
How would the change in the preferences of overseas consumer affect the economy of each
economy by using the aggregated demand and aggregated supply............................................3
Question: 5.......................................................................................................................................4
What does the elasticities model of devaluation predict the impact of sterling’s devaluation
on the UK’s Current Account balance........................................................................................4
REFERENCES................................................................................................................................5

Question: 1
How would the change in the preferences of overseas consumer affect the economy of each
economy by using the aggregated demand and aggregated supply.
There are two countries A and B and the country A's goods are less popular with foreign
consumer and the other B's commodities are more population. A country is having their own
currency and B country is sharing common currency with their foreign customers. Desirability
of currency union is defined as the merging of the currencies and sharing the common
currencies which leads to reduce the transactions costs in an increasing integrated regional
market(Jordehi, 2019). There are various factors which are necessary fro the currency union is
stability of government, effective fiscal positions and the exchange rate stability and the overall
convergence of long-term interest rates. Taste and preferences of the customers are the choices
which can be varied over a specific period of time. It is being measured by certain bundles of
goods. They also permits the buyers to rank such goods as their level of utility as received by the
consumer. As the Country A is having their own currency and their goods are less popular in the
foreign market. In such cases, there is the problem of having the major impact that exchange in
the currency tends to have the lower demand of goods in the foreign market as the people who
are living in the foreign market are more happy to share the overall goods which are easy to buy
and also having the same value of currency of that products in comparison to other currency in
which the foreign guest is residential. This is the reason why the country B's good are more
popular as they are sharing the same currency with the other countries , where the people are
making purchase from the B country. This leads to increase the demand of goods in the target
market as they are contributing to the factors which re leading to rise the overall demand of
goods in target market. These aspects make the desirability of currency union among the
countries by which they can increase its sale in the foreign market which also leads to have more
profits to them. Then their goods become more popular in the foreign market(Gurumurthy And
et. al., 2020).

Aggregate demand/ supply model shows what analyse total supply or total demand for
for the economy and how the total demand and the total supply interact in the macroeconomic
level. Aggregate demand is the total quantity of the products that the firm is producing and sell
or can be the real GDP. Aggregate demand is the total amount of spending on the domestic
products and services within the economy. According to the case, It can be said that country A's
goods are less popular as there are having their own currency so there is the less aggregate
demand of their goods in the market and they are having huge aggregate supply. So it can be said
that the country is not retaining with the equilibrium due to huge variation in the demand an
supply of goods. On other hand, Country's A is having the popular goods which say that there is
the equilibrium in the aggregated demand and the aggregate supply of the given goods in the
target market as the people are liking the goods of country A and they are also sharing the
common currency with the other nation so there is the huge sale of their products in the target
market which make them more popular in the demand of the goods.
Question: 5
What does the elasticities model of devaluation predict the impact of sterling’s devaluation on
the UK’s Current Account balance.
Since the European Union has been separated from United Kingdom, there was a great
effect on the value because the GBP is related to the British pound sterling, as this is the national

currency of UK. When Brixit voted in 2016, there was a big exchange rate of British currency
against the other top performing currencies, this lead to the fall in value as a result. It is now
evaluated that the negative reflection of the global investors in the UK economy. Since past five
years, Brexit is the leading driver in the influencing of their exchange rate changes as well as
their provided value of the British Pound was falling against the growing countries. It was a
consequence of the increase in the whole expectation of the trade fluctuation between UK and
the big trade executives. There was a big uncertainty as well as big effect of government
instability that had an effect on financial association for giving the British Pound in a low value.
There were some more companies that were given as self dominated assets that may result in
decrease of the whole value of British Pound.
In the terms of elasticities model of devaluation, it is to be known the time prices of
British Pound is decreased which results into demand of products which is simple for the public
to be bought, since the goods are affordable for them, the persons who are from the outer UK has
to decrease the interest on their export trades so as to balance the trade deficit and an advantage
in the demand elasticity. There are different factors in a reason for the down shift of the value of
British Pound for the effects of EU. Some of the factors are listed below -
 Interest rates – Any fluctuation in this may effect the exchange rates and also the
domestic interest rates for the return obtained on provided assets for nation. For example,
Bank of England has reduced it from 0.5% to 0.25% in August 2016 (Dawid and Gatti,
2018). (Chirichenko and Fisunenko, 2018).
 Uncertainty and political instability- The decision made by the investors and the
expected return can be influenced by the change in overall risk related to the
organisation. The future performance and growth of the company, the outlook of the
economy and interest rate are some kind of factor that are increasing uncertainly. These
all characteristic can make political stableness to hold all the assets present in an
organisation in a specific country. This is a very risky factor, which lead's to decease in a
outpouring of investment within the economy.
 The present political instability in United kingdom is a very huge risk because it is
completely depends on surroundings of uncertainty post Brexit trading relationships and
the economic output.
There are some result of fall in sterling are given below:

 Due to the major fall in the sterling, there is the increase in the given prices of the
foreign goods and services. It results in more expensive to the goods and services.
 The less strong currency can effect on more quantity of exports by decrease in the whole
cost of domestic commodities to the public based out of UK.
There expectations of investors are formed by the currency markets that can be rapidly
observed in the provided exchange rates. Therefore the marketers had a negative effect on their
investment in British currency which was falling in value.

REFERENCES
Books and Journals
Chirichenko, Y. and Fisunenko, N., 2018. Marketing determinants of the development of the
investment market: innovations in the assessment of demand and supply (case study for
the construction industry).
Dawid, H. and Gatti, D.D., 2018. Agent-based macroeconomics. Handbook of computational
economics, 4, pp.63-156.
Eichenbaum, M.S., Rebelo, S. and Trabandt, M., 2021. The macroeconomics of epidemics. The
Review of Financial Studies, 34(11), pp.5149-5187.
Guerrieri, V. and et. al., 2020. Macroeconomic implications of COVID-19: Can negative supply
shocks cause demand shortages? (No. w26918). National Bureau of Economic
Research.
Gurumurthy, K.M. And et. al., 2020. Integrating supply and demand perspectives for a large-
scale simulation of shared autonomous vehicles. Transportation Research
Record, 2674(7), pp.181-192.
Jordehi, A.R., 2019. Optimisation of demand response in electric power systems, a
review. Renewable and sustainable energy reviews, 103, pp.308-319.