2020 IB Extended Essays

products (Economics Beta, 2016). Therefore there is an increase in the supply of pound which can be seen in Figure 16 as the supply curve shifts right from “S1 to S2”. The increase in supply leads to a decrease in the amount of USD, 1 unit of pound can purchase from “Q1 to Q2”. This decrease led to a decrease in Price from “P1 to P2” hence a depreciation in the British Pound. The two figures have different outcomes for currency value. Figure 15 shows currency appreciation, however Figure 16 demonstrates a currency depreciation. Therefore, it can be noted that the UK is witnessing a currency fluctuation.

Figur17: Amount of Pound 1 unit of USD can purchase

The UK implemented a contractionary monetary policy and increased their interest rates in August 2018. As seen on Figure 17, the currency value was “0.785” before the policy was set. After lowering the inflation and making goods cheaper, the UK managed to increase exports hence their currency value back down to “0.758” (Trading Economics, 2018). However, the UK also experienced a decrease in current account and trade balance, leading to a higher supply of currency. Since a higher supply leads to depreciation, the value of the UK went down back up to “0.802”. This trend showcases a fluctuation in the data. In contrast to Turkey, the UK could not manage to impact both supply and demand of the pound. Since Turkey managed to impact both aspects of currency value, their trendline demonstrates a constant appreciation to the start of 2019 ultimately reaching a value of “1 USD=5.5TRY” as seen on Figure 8. On the other hand, the UK witnesses a constant fluctuation up to 2019 hence, not achieving their aim of slowing the economy down in order to be more competitive in the trade market, therefore it can be said that Turkey achieved a greater extent of currency

appreciation.

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