U.K. National debt 76.5% of GDP?!?!

1) How is a depreciation of its currency likely to affect a country’s balance of payments?

Yes depreciation is likely to affect a countries balance of payments in a positive way. The balance of payments of a country is how much more the country exports or imports. If there is more imports than exports the countries balance of payments in negative although on the other hand if there is more exports than imports the countries balance of payments is positive. China recently had and still has a positive balance of payments that is around 40Bn U.S. Dollars. If the currency depreciates its exports will be more competitive with other countries, although exports will be much more expensive. This will make the exports rise and the imports decrease making more injections into the country leading to a positive balance of payments.

2) What are the requirements for the UK to achieve an export-led recovery?
The UK needs to increase its exports, to achieve an export-led recovery. How can it increase its exports compared to the imports is quit difficult. A weaker pound would help a lot, although the main problem with UK exports is that it can not provide cheap labour, therefore they need to concentrate on innovation and advanced technology production. Since other countries like china or eastern europe provide cheap labour the UK needs to concentrate on innovation. This will increase its economy since that is one thing that the UK is really good at.

3) How might supply-side policy affect the balance of trade?
The supply side policy might affect the balance of payments by increasing the output of the country which then would lead to more export and innovation. Due to education and training the companies will manage to have more efficiency out of a single worker. As well as decreasing trade union power is great to decrease the costs for the companies. This all applies to increasing the output of the country to increase its exports.

4) What determines the income elasticity of demand for (a) UK imports; (b) UK exports?
A The income elasticity for UK imports is determined by how strong the currency is, the stronger it is the more imports are competitive since they are cheaper.
B The exports income elasticity is determined as well by the pound how strong it is, it is just the opposite of part A. If the pound falls in price, the imports will be less attractive although the exports will be very competitive on the market.

What do you think?
Erlach