Friday, December 27, 2019
Internal Devaluation And Its Effects On The Economy
Furthermore, the Fund also recognized that after nearly four years of ââ¬Å"internal devaluation,â⬠the economic strategy had not succeeded. The idea of an ââ¬Å"internal devaluationâ⬠is that if you create enough mass unemployment and push wages down far enough, the economy can become more competitive due to lower labor costs. This allows exports to grow, and import-competing industries to also do better, improving the trade balance. Since exports add to economic growth and employment, and reduced imports do the same, the economy can recover in this scenario due to increasing net exports (exports minus imports). Normally this could be attempted through a devaluation of the currency. But the troika has only recently shown any intention of trying to push the euroââ¬â¢s value down against external trading partners; and of course since it is a common currency, the more depressed economies within the currency union canââ¬â¢t devalue against the others (e.g. Spain ver sus Germany). This leaves ââ¬Å"internal devaluationâ⬠as the remaining hope for recovery for countries such as Spain, Greece, and Portugal. In other words, despite the negative impact of the fiscal austerity, the theory is that ââ¬Å"internal devaluationâ⬠based on lower labor costs can drive recovery based on the growth of net exports. But it took years to reach this point ââ¬â despite crushing levels of unemployment and mandated reductions in the social wage (e.g., pensions and health care). The Fund finds that from 2008-2012, there wasShow MoreRelatedU.s. Dollar, China s Central Bank1397 Words à |à 6 PagesChinese market, even the economic market all around the world, which brought a series of fluctuation and impact to the economy. Why china took this monetary action to face with the problem from the US dollar (What are the factors)? What is the (Positive or negative) influence will be aroused in the short term by this Chinese Yuan depreciation? 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