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A-Level Economics · Currency depreciation diagram question

EVALUATION: who LOSES from the depreciation?

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The diagram

The answer

UK importers and consumers — imported energy and food cost more, SRAS shifts left and cost-push inflation rises. Dearer imports shift SRAS left: inflation up, growth down, unemployment up. That's the cost-push chain — and you can run it through all four macro objectives. The losers are importers and the consumers who buy imported goods. Chain it: depreciation → imports more expensive → SRAS shifts left → inflation rises → real output falls → unemployment rises — and because inflation rises, UK exports eventually become more expensive too, undoing the competitiveness gain. You can build a whole 'evaluate a depreciation' essay on this alone, without touching Marshall-Lerner.

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This is one of 5 questions on the currency depreciation diagram — every corner lettered, every wrong answer diagnosed.

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