I wish I did better on the mock exam because it would have shown me that I don’t need to put an extra effort to get a good grade. However, my score was not low enough to drop my grade down, which is good. The good side of getting a score that wasn’t great is that you can see what you need to work on. For revisions, I will study more from the big textbook because it is alot more detailed than the other resources we have. One of my problems was that I knew everything on the surface, but I didn’t know much in depth. Based on the exam, my predicted score will be a low 5, high 4, which is far from ideal. What I want for the real exam is a safe 6.


Final reflection: mock exams, plans for revisions, predicted grade


I think I did much better than I thought I would on this test. There were so many questions that could have come up, so I had to study all of them hard and have a bit of luck. I think what I need to do is to be more specific with my terms and have better definitions. Also, to get a better score, I think I should include more real-world examples. My diagrams were drawn well and my explanations were good as well. Ms. Q graded this test fairly and had helpful comments.


Somalia’s population is just over 10 million and its population growth is 2.824%. The life expectancy is 50 years old. GDP per capita is very low at less than $600. 43% of Somalia’s population lives below the poverty line. The percentages of aid in gross capital formation is 345.7%, which is second in the world. Somalia’s dependency ratio per 100 people is 102. There are only 0.04 physicians per 1,000 people. The number of primary school girls out of school in Somalia is the highest among 99 countries.

Somalia does neither imports nor exports electricity. Somalia’s exports are livestock, bananas, hides, fish, charcoal, scrap metal. 65% of Somalia’s exports are agriculture and industry only holds 10%. The economic activity of both sexed aged 10-14 is 31.3% and for 65 plus is 50.16%, which represents a small ratio.


1.      Demands of the Question

This is a 10 mark question that is to be written in 20 minutes. This question does not require me to evaluate anything. To answer this question, I need to define the terms, draw diagrams and compare the different exchange rate systems.

2.      Definitions

Fixed exchange rate: An exchange rate regime where the value of a currency is fixed, or pegged, to the value of another currency, or to the average value of a selection of currencies, or to the value of some other commodity such as gold

Floating exchange rate: An exchange rate regime where the value of a currency is allowed to be determined solely by the demand for, and the supply of, the currency on the foreign exchange market

3.      Cut and paste from Triple A

A fixed exchange rate system is one where the value of the exchange rate is fixed to another currency. This means that the government have to intervene in the foreign exchange market to maintain the fixed rate. The equilibrium exchange rate may be either above or below the fixed rate. In Figure 1 below, the equilibrium is above the fixed rate. There is a shortage of the national currency at the fixed rate. This would normally force the equilibrium exchange rate upwards, but the rate is fixed and so cannot be allowed to move. To keep the exchange rate at the fixed rate the government will need to intervene. They will need to sell their own currency from their foreign exchange reserves and buy overseas currencies instead. This has the effect of shifting the supply curve to S2 and as a result, their foreign currency holdings will rise.

Where the exchange rate is floating (as are all major currencies in the world), it will be determined by market forces – that is supply and demand. As in any other market, the rate will change constantly to reflect how much of the currency is being traded. However, what determines the supply and demand for the currency? Let’s take the Baht (the Thai currency) as an example and look at the factors that affect supply and demand and therefore the equilibrium exchange rate.

4.      Bullet points of this

  • Government intervenes in the foreign exchange market to maintain the fixed rate
  • Equilibrium exchange rate may be either above or below the fixed rate
  • Shortage of the national currency at fixed rate
  • Government will need to sell their own currency from their foreign exchange reserves and buy overseas currencies instead
  • The rate will change to reflect how much of the currency is being traded

5.      Insert relevant PP slides

6. Diagrams

7. Evaluation Suggestions






Data Response: Free trade and protectionism

Data Response: Tension Between the US and China


Kanika’s blog


Reflection: Data response section 4

Danger Zone

SHOWCASE: Summative test section 4




The UK was in a current account deficit in the beginning of this year. The pound depreciated and it is currently weak. What economists in the UK are hoping is that the change in value of the currency would increase the demand for imports to lessen their deficit. The Marshall-Lerner condition shows the impact depreciation has on the balance of payments.


At the moment, it seems like the UK has a condition presented in the diagram on the right. In this graph, a change in price is causing a small response in a change in demand. The depreciation of the pound has caused only a minor increase in its demand. What the UK and all other countries want is to have a high elasticity of demand for their currency, which is represented in the diagram on the left. In this diagram, a small change in price creates a huge change in demand. In terms of currency, if a country’s currency depreciates, they would want other countries to respond with a greater demand of their currency.


The economic relationship between China and the US is very strained at the moment. China has a managed exchange rate system, which means that there is generally a floating exchange rate. However, when they want to avoid sudden fluctuations, the government will intervene. China’s managed exchange rate system has infuriated other countries, such as the US and Brazil. The US is saying that China is taking advantage of other countries by allowing a current account surplus. When the US trades with China, it is “destroying jobs and limiting growth”. Also, the high demand for Chinese exports increases competition with other countries, including the US. The competition gets very hard to overcome for other countries when China is able to change its currency to better suit its needs.

In the diagram above, the current account surplus in China is displayed. A current account records the imports and exports of goods and services and the flow of income. A surplus in the current account is a situation where there are more exports than imports. China has a surplus because its inflow of money is greater than its outflow. At first, China was not open to international trade. The quantity of their currency demanded was at Q­1 and the exchange rate between the US and China was at P1. After China opened to international trade, it started to export a lot, which would increase the demand of its currency. Since more people want China’s exports, they have to sell their own currency and buy the Chinese currency. The demand of Yuan shifted up from D1 ­to D2. This increased the quantity of Yuan and raised the interest rate. As a result of the increase in the exchange rate, the Yuan appreciated. Appreciation is when the value of a floating currency rises. This makes the Chinese currency more expensive for other countries when they import from China.

A weak dollar would generally by beneficial for the US. First of all, it would increase their exports. This is because it would be cheaper for other countries to purchase the US’s exports. Since it is cheaper to buy American goods, the purchasing power for American goods and services in the foreign market would increase. With increasing exports, the US could lower the current account deficit. A deficit is when there is a greater amount of imports than exports. A strong dollar would decrease the demand for the US currency and the country’s exports. The US would export less because it would become more expensive to foreign buyers. Since the US would export less and import more, the current account deficit would become even greater. Since the US would export less, this allows China to export more, which would make its current account surplus bigger, but that doesn’t seem to be bothering anyone in China.

If China had a stronger Yuan, the same thing would happen that would in the US. The exports would decrease because they would become more expensive for foreign consumers. This would decrease China’s current account surplus. As the export levels decrease, the import levels will increase. Included in the imported goods are capital goods and consumer goods, which can be very useful. A weaker Yuan would increase China’s current account surplus. This is because China’s goods would become cheaper, and countries would want to trade more with China. Their import level will increase even more. This hurts the US because it could decrease the demand for the US dollar if more countries want to import from China.

I think that China’s currency policy is extremely unfair. China is going up in rank in terms of the biggest economy, and its enormous amount of exports intimidates other countries. Not only that, but China can greatly change its exchange rate if it ever felt a disadvantage (which it shouldn’t). Other countries are getting very frustrated at the unfair advantage that China has. If it is possible, I think that China should get off the managed exchange rate system and switch to the floating exchange rate system.




There are many advantages and disadvantages of having a single currency. At the moment, Spain is going through a lot of economic and financial trouble, and the cause is the Euro. When Spain first adopted the Euro, it got alot of money to support the private sector and its economy experienced rapid growth. One bad side of a single currency is that when one country’s currency changes, all the other countries’ currencies change as well. Since everyone has the same currency, it is harder to make your industry competitive. As a result of a single currency, Spain must perform “internal devaluation”, which means adjusting so costs can be the same as other Euro-using nations.


From 1980 to 2008, Spain had a steady increase in GDP per capita. However, in 2009, the GDP per capita dropped, which means that people in the country had a lower income than the previous year. After that drop in GDP, it went back up again this year. Since the GDP in rising, it means that people can spend more money on imports. This would bring in more imports than exports, which leads to a current account deficit.

ARTICLE: http://blogs.wsj.com/source/2010/11/26/spanish-pm-remains-defiant/

This article talks about Spain’s problems that came with the current account deficit. Since Spain imports more than it exports, it needs funding from other countries. Right now, Spain has a strong euro, but is not competitive internationally. Other countries don’t want to provide money for countries like Spain. Also, the prime minister of Spain is saying that he is not willing to lower students’ tuition or reduce the bloated bureaucracy, which are two easy ways to help the situation.


For this data response, I got a better grade than I did on the formative. However, I only went one mark up, so I didn’t improve as well as I could have. What I did wrong was not knowing the definition of “dumping”. I thought that it wouldn’t be on the data response, so I didn’t study it. I now know that I should study all the vocabulary from a section, even if we haven’t talked about it in-depth. Also, I should try to have more discussions in my evaluation. I would like to get full points on my evaluation some time, but that won’t happen until I have more reasons and details.