2020 IB Extended Essays

result of the difference in “%” change of interest rates. Turkey implemented a much larger monetary policy; therefore, they are theoretically expected to witness greater changes in Trade Balance and Current Account. As a result, in relation to the research question, due to increased exports and current account values, Turkey will also witness a greater appreciation of currency compared to the UK.

The decision to utilise a contractionary monetary policy has achieved it is aims, as inflation has been reduced and GDP has been detained. This has resulted in a lower price of goods and services. When domestic prices are low in a country. This attracts foreign demand hence, higher exports. This coupled with higher interest rates leading to interest from foreign investors leads to increased demand for the British Pound. (Anthony, 2018) (Economics Beta, 2016) As seen in Figure 15, the higher demand for the pound has led to a shift in demand curve from “D1 to D2”. This graph shows the value the British Pound in US dollar terms. To analyse the difference between Turkey and the UK both currencies had to be compared to (USD). The rise in demand leads to an increase amount of USD, 1 unit of pound can purchase which can be seen as the rise from Q1 to Q2, Figure 15. This leads to a price increase from P1 to P2 that represents the value of the Pound in US dollar terms. As a result the use of the demand side policy successfully stimulated exports for currency appreciation for the UK. Although Turkey's use of monetary policy helped improve trade balance and current account. As mentioned before and seen in Figure 14, the UK has been running a current account deficit and it has only intensified as the “35.58%” decrease leads to the UK supplying more of its own currency than foreigners demanding for its

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