1) Define the managed exchange rate system.[4]
2) Explain the reasons for fall in export despite of depreciation of Indonesian Currency.[6]
3) Explain the important factor of growth in Indonesian Economy.[8]
4) Discuss how the changes in currency exchange rate affects the economic growth of a country.[12]
Is this year 9 assignment
ReplyDeleteyes, this is for your class.
ReplyDeleteSir, i have sent you email about this assignment. i dont know why i cant comment on this post and make the new post either. please consider this and check your email. thanks!
ReplyDeletePrincilla 9B
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Answer Submitted by Princilla
ReplyDelete1. Managed exchange rate system is a system where govt place some influences on the exchange rates that would otherwise be floating. Govt controls the exchange rate by buying and selling it at certain time. When the exchange rate has appreciate too high, govt would lower it down by depreciating it or when it has depreciated too low, govt would try to make it appreciate.
2. The fall in export is caused by the fall in FDI. Foreign investors flocked to dollars asset on concerns over euro zone’s debt crisis. The euro zone’s debt crisis has effected many currencys including the international trade. Importers refused to import goods from Indonesia because of the unstable (floating) exchange rates. As its written above, they prefer rupiah in a stable rate. So they wont make loss in the future. Also, the competitiveness between countries that exports the same raw material with Indonesia is very high. Other country refuse to import from Indonesia because of the price and quality.
The fall in exports is also being supported by rubber farmers. Less supplies are now available because of the raining season in Indonesia. Which means the production will fall and less products can be exported. The cheaper price of rubber is not a problem for the farmers because the lower production. this will give them less loss compare if the production of rubber at the moment is high.
3. every country wants to have a better economic growth. The higher the economic growth, the more respect it well get from other country. Other country will be attracted as well because of the growth. Economic growth means the growing in outputs with the same amount of resources. When more outputs are being sold, it means that more employees are needed to make the goods. This means that employment will rise and the living standard will rise as well. When the living standard is high, the life expentancy of people in the country will rise and so other people from other country will be attracted by it and immigrate to the country making more labours are available. When the output keeps increasing, employment rate will keep increasing also. More children will go to school, which means the literacy rate will rise and this will create a better future. The economic growth will also make people can afford to go to the doctor and so their disease will be healed and they can go back to work normally. Economic growth is pretty important for a country because it will make the countrys GDP rise and the country will become more develop. Tall buildings, good roads, good public systems/ expenditure will be available. The more economic growth means the more supplies are available. This will create a stable market price and trading. Inflation will be less because people are no longer fighting for the goods. The international trade will be run well also and even increase in exports because more supplies can be exported. This will effect the exchange rate as the currenciy appreciates, imports are rising because of the cheaper price. People in the country will be able to purchase them in a lower price and greater amount.
Answer 4 by Princilla
ReplyDelete4. the exchange rate is changing due to the fluctuating demand and supplies. When the currency appreciates, the less goods are being exported because of the not-worthed-price for the other country. They will not import goods because they will make loss later on. When the exports fall, the imports will rise. If more the value of imports are higher than exports then it means the country is having a trade deficit (unfavourable trade balance). This has bad effect for the country such as, more people are buying the imported goods rather than the local one. if more money is paid out for imports than is earned from exports then this loss of money from an economy may mean less can be spent on domestic goods and services. Domestic firms will face a fall in demand for their products and may cut back production. This forced the local firms out from the business and unemployment will rise. Also the goods produced in that country are now less compare to the other year. This will results in a lower GDP and economic growth. As its written above that investors refuse to imports good from Indonesia because of its unstable exchange rates. it makes other country prefer to import from Malaysia, Brunei, or etc. the value of exchange rate will fall, causing imports to become more expensive and resulting in imported inflation. If the demand for imports is generally price inelastic then more money will be paid out for imports and demand for domestically produced goods and services may fall futher. As the local firms are out from the business, this means that the exports will fall.
However, if a country currency depreciates, this will make more value of exports rather than imports. This somehow is good because it will make more goods as they are demanded by international customers. Economic growth will rise because of this. Supplies are rising and this causes more outputs. As more outputs are being supplied, the GDP will rise. when the demand for exports are high, the production of goods will keep rising. More workers will be needed in order to make the supplies. This means that employment rate will rise and living standard will rise as well. People can afford to buy customer goods which will make an economic development for the country. And as they have income, they can go to healthcare and life expantancy will rise. When more people in the country is healthy and can work, it means that goods can be produced faster and in a greater amount. Then, the GDP per capita will rise and the married people that has children will be able to afford for their children. This will make the mortality rate fall and these childrens can have knowledge for their future which will lead to a brighter future. however, the increase in demand at the end might result in demand-pust inflation because the country might be run out of resources. Inflation will occur and the demand will fall. Also, when the exports exceeds the imports, there will be trade surplus. this also has negative effect for the international trade. Eventually, surplus causes the value of currency to stay high and this may reduce demand for exports and cause loss of jobs. And then the exchange rate will be affected again.
1. Managed exchange rate system is the system where exchange rate is stable, usually managed by the government. Some countries have managed exchange rate system in order to maintain the stability of import, export and to keep speculators away. A managed exchange rate system does not change much from day to day. Governments manage this by selling or buying reserve assets such as gold and foreign currencies to appreciate or depreciate the currency.
ReplyDelete2. After a long run, exports might fall despite a depreciation in currency. This can be caused by rising prices of raw materials. The price of local raw materials might increase because people try to get as much profit as possible and Indonesia is entering a heavy rain season, which will reduce their production. Once the price of raw materials has increased, the cost of producing goods will also increase. This decreases production, as there is a high cost of producing goods, and also decreases demand because prices are rising. It can also be caused by an increase in the price of exported raw materials. Foreign exporters sell these materials at a high price and force producers to produce at a high cost and sell at a high price too. This is why exports are decreasing, regardless of a depreciation in currency.
3. One of the most important factors of growth in Indonesian economy is the exchange rate. The exchange rate shows the rate at which we buy international currency. This is determined by the inflation, terms of trade, interest rates and speculation for that currency. If Indonesian currency falls, there will be:
a. Low confidence for future growth - people think that the economy is getting weaker so therefore they will not invest. If there is no investors from abroad, the economy is unlikely to grow as there is a low demand for Indonesian currency.
b. People will have lower returns - for example if there is an investor who invests $1 billion, at a rate of $1=Rp8,500 and after a year, if the Indonesian currency falls as compared to dollar, at a rate of $1=9,000, the investor will get less returns. He pays more Rp500 for each dollar. It's better not to invest.
c. Imported inflation - as currency depreciates, we have to pay more for imported goods, the price of goods and services from economy importing goods are increasing. As importers use imported goods to produce finished goods, they still have the need to import. As cost increases, the price level will also increase. Aggregate demand will fall because there is a fall in investment and unemployment will be at a higher rate.
d. Lower exports - if currency falls, exports will increase in a short run, but after a long run, there will be a fall in exports. This is because of the imported inflation, as the price of raw materials and raw imported materials increase, people will sell at a higher price. If no one wants to buy, then it is likely to be a deficit in the balance of payments of a country.
4. If currency is appreciating, it is good for the economy because people will be able to purchase more imported goods at the same cost. However, this means that there will be an increase in imports and the country will have a deficit in its balance of payments. But after a long run, as a country is able to purchase more imported goods at the same cost as before, production of that country rises and therefore goods will be sold at a lower price. This can increase exports to cover the short-term deficit in the balance of payments. If a currency is depreciating, it is good for a short run. Because the value of that currency is getting lower compared to other currencies, it will cost people more money in order to import goods. Exports will have a high increase because that currency is lower compared to other currencies so importers will pay less and the exported goods will be sold abroad at a lower price.
ReplyDeleteIf a currency is having a lower value, there will be a low investment and it will be hard for the country to raise capital in order to achieve economic growth. Exporting natural resources will not work because it will be sold at a lower price. If a country is living in poverty then there will be some problems such as lacking infrastructure, corruption, dependence on international aid, lower level of education, dependence on agriculture and a high birth rate. These problems are mainly caused by the lack of capital. As the country is earning less from its exports, there will be some shortages of money which can reduce productivity, leads to lower efficiency, lower consumption of goods and services. The country will be in a huge trouble. It can only survive by depending on international aid/loan from other countries.