2020 IB Extended Essays

The position of the business cycle gives the consumers and idea of the direction the economy is heading. As seen in Figure 18, the month of September demonstrates that the Turkish economy is in a contraction period. (Trading Economics, 2018) During a contraction period, people tend to save rather than spend. On the other hand, the UK made its decision early August, where the economy is in an expansion as seen in Figure 19 (Trading Economics, 2018). This denotes that consumers are willing to spend and invest. As a result of the business cycle diagrams, it can be noted that Turkey can achieve higher results for a reverse multiplier value and by further extension a greater appreciation in their currency. However, it must be recognised that these conclusions do not consider external policies hence, ceteris paribus and it must also be considered that the UK’s monetary policy was much lower “0.25%” compared to Turkey “7.25%”.

Figure 22: Theoretical Age Comparison for MPC and MPS 10-25

25-40 0.80 0.20

40-65 0.60 0.40

65+ 0.80 0.20

MPC MPS

0.90 0.10

To achieve a successful negative multiplier economies must have a low MPC and a high MPS value. These factors also depend on the population pyramids. The use of population chart for comparison is also relatively accurate due to similar populations between the two countries. Firstly, as seen in Figure 22, there are theoretical values for which age group has a high or low MPC and MPS. (BARNIER, 2020) Turkey has a higher number of 10-25 and 25-40-year-old age group compared to the UK. (Jocelyn Blink, 2012) This demonstrates that the majority of the population would have a higher marginal propensity to consume and a

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