2020 IB Extended Essays

lower marginal propensity to save. This can be seen in Figure 21 as the MPC values are above “0.8” (World Bank, 2018). However, the values in Figure 22 are theoretical and are not entirely valid. Furthermore, the values for the age group of 40-65 are relatively similar for Turkey and the UK as seen in Figures 20 and 21. This showcases that both countries have a similar population that would have great tendency to save as seen in Figure 21 where the MPC is low at 0.60 and the MPS is quite high at 0.40 for the age group of 40-65. Furthermore the UK has a relatively larger number of the population above the age of 65. As seen in Figure 21, the MPC is high at 0.80 and the MPS is low at 0.20. As a result, it would seem that both countries would have a similar outcome for the negative multiplier depending on the population pyramid as both Turkey and the US have age groups that have a high and low MPC values. (ukpublicspending, 2019) (countryeconomy, 2018) Therefore, it was expected that both countries achieved currency appreciation. When looked at all the determinants of the MPC and MPS it can be seen that Turkey would achieve a better result compared to the UK in terms of the negative multiplier. A lower MPC and a high MPS result in a better negative multiplier value. Turkey has a lower GDP, a contraction point in the business cycle and a subpar percentage of the population having a low MPC. As a result Turkey has an MPC value of 0.6 and an MPS value of 0.4. On the other hand, the UK has an MPC of 0.7 and an MPS of 0.3. (countryeconomy, 2018) These values were obtained using data from GNI and expenditure during 2018. (World Bank, 2018) The MPC and MPS values are also validated by the negative multiplier values as the number for the UK is 1.23 and the number for Turkey is “1.48”. Since the multiplier measures the extent of how an endogenous variable(currency value) changes in response to a change in an exogenous variable(interest rates), it can be noted that turkey achieved a greater extent of effectiveness of their contractionary monetary policy compared to UK. The multiplier directly impacts the determinants of currency value via inflation, GDP, and current account, and by further extension, the country with the higher multiplier(Turkey) will achieve higher currency appreciation(ceteris paribus) which can also be seen in the comparison between Figures 17 and 8.

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