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Chile With reference to Figure 2, explain one likely reason for the change in the Chile pesos exchange rate between 2013 and 2015 - Edexcel - A-Level Economics A - Question 1 - 2017 - Paper 3
Question 1
Chile With reference to Figure 2, explain one likely reason for the change in the Chile pesos exchange rate between 2013 and 2015. Figure 2: US dollar per 100 Chil... show full transcript
Worked Solution & Example Answer:Chile With reference to Figure 2, explain one likely reason for the change in the Chile pesos exchange rate between 2013 and 2015 - Edexcel - A-Level Economics A - Question 1 - 2017 - Paper 3
Step 1
With reference to Figure 2, explain one likely reason for the change in the Chile pesos exchange rate between 2013 and 2015.
Answer
The exchange rate for the Chile peso against the US dollar showed a depreciation between 2013 and 2015. One likely reason for this change is the significant fluctuations in copper prices, as depicted in Figure 1. As copper accounts for a large portion of Chile's exports, falling global copper prices can lead to reduced export revenues, which depresses the demand for the Chile peso against the US dollar.
Step 2
Examine the likely impact of externalities of copper mining on firms and communities in Chile.
Answer
The externalities of copper mining in Chile can have both positive and negative impacts. On one hand, mining activities create job opportunities and stimulate local economic growth. However, the negative externalities include environmental degradation, which can harm agricultural productivity and local health. Communities may face increased pollution and resource depletion, leading to long-term challenges in sustainability.
Step 3
Apart from externalities, discuss the problems that Chile faces as a result of dependency on copper mining.
Answer
Chile's heavy reliance on copper mining makes its economy vulnerable to price fluctuations in global markets. This dependency can lead to economic instability, especially during downturns in copper prices. Additionally, there is a lack of diversification in the economy, which restricts growth in other sectors. This can result in job losses and decreased investment in alternative industries.
Step 4
With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of policies that could be used to stimulate economic growth and development in Chile.
Answer
Policies aimed at stimulating economic growth in Chile could include investment in infrastructure and technology to enhance productivity. Microeconomically, supporting small and medium-sized enterprises (SMEs) could diversify the economy and reduce dependency on mining. Macroeconomic policies involving fiscal stimulus can help during economic downturns, but they must be balanced against inflationary pressures and currency stability.
Step 5
With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic impact on Chile's economy of changes in the level of investment.
Answer
Changes in the level of investment have substantial microeconomic and macroeconomic implications. An increase in investment can enhance productivity and create jobs at the micro level, while at the macro level, it can lead to economic growth and improved GDP figures. Conversely, reduced investment can hinder growth, leading to underemployment and reduced consumer confidence, which can negatively affect overall economic stability.