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After plans for 'Brexit' were revealed there was a 'flash crash' where the value of the Pound Sterling (£) fell sharply against the Euro (€) - Leaving Cert Economics - Question 5 - 2017
Question 5
After plans for 'Brexit' were revealed there was a 'flash crash' where the value of the Pound Sterling (£) fell sharply against the Euro (€). State and explain two p... show full transcript
Worked Solution & Example Answer:After plans for 'Brexit' were revealed there was a 'flash crash' where the value of the Pound Sterling (£) fell sharply against the Euro (€) - Leaving Cert Economics - Question 5 - 2017
Step 1
(i) State and explain one possible economic consequence of the above situation for the Irish Economy.
Answer
One possible economic consequence is that Irish export prices to the UK become relatively more expensive. As the value of the Pound falls compared to the Euro, Irish goods priced in Euros become more expensive for UK consumers. This increased cost may lead to a decrease in demand for Irish exports, especially from sectors like agriculture that heavily rely on the UK market. Consequently, this can result in lower sales, reduced income for exporters, and potentially layoffs or reduced hours for employees in these sectors due to decreased production needs.
Step 2
(ii) State and explain another possible economic consequence of the above situation for the Irish Economy.
Answer
Another consequence is that import prices from the UK can become relatively cheaper. As the Sterling depreciates, Irish companies importing goods from the UK may experience lower costs. This may lead to increased demand for Sterling imports, as Irish firms find UK products more affordable. While this can benefit consumers with lower prices, it can also create dependency on UK suppliers and negatively impact local industries that compete with these imported goods. Additionally, this could lead to a deterioration of the balance of trade, as the increase in imports may rise faster than exports, affecting economic stability.