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Discuss the extent to which an increase in exports will improve an economy's macroeconomic performance.

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Introduction

Good macroeconomic performance is normative in nature therefore hard to be validated. However for the purpose of this essay, good macroeconomic performance basically involves low unemployment, high and stable economic growth, stable and low inflation and an acceptable and positive current account of the balance of payments. An increase in exports will bring about and increase in aggregate demand in the short run. Aggregate demand is made up of consumer expenditure, government expenditure, investment and net export, export minus imports. Therefore an increase in exports will increase net export and subsequently increase aggregate demand. An increase in aggregate demand would mean an increase in economic growth, which shows good economic performance. ...read more.

Middle

However there are problems arising from an increase in exports. In the short run, with a short run supply curve, although an increase in exports will cause economic growth and increase in employment, it does however also increase inflation rates or general price levels which will be damaging to the economy as high inflation can cause high interest rates, wage price spiral, reduced investment etc. If it is just purely in the long run or if the economy is performing already on the production possibility frontier, maximum efficiency as shown by the diagram below, an increase in aggregate demand caused by an increase in exports will be potentially damaging. ...read more.

Conclusion

This proves that in the long run, balance of payments deficit will emerge and this means that the positive macroeconomic performance caused by an increase in exports cannot be sustained. In conclusion a rise in exports will produce tradeoffs; the benefits of an increase in exports will far outweigh the negatives in the short run. However in the long run the effects of the benefits will not be sustained. The effects are also dependent on other external forces such as multipliers in which a weak or negative multiplier would produce effects opposite to the benefits. ?? ?? ?? ?? Discuss the extent to which an increase in exports will improve an economy's macroeconomic performance 1 | Page ...read more.

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Response to the question

This essay engages with the question superbly. It was very impressive to see the essay start off so strongly stating that performance is a normative judgement, but goes onto define what they see it as to ensure a focused and ...

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Response to the question

This essay engages with the question superbly. It was very impressive to see the essay start off so strongly stating that performance is a normative judgement, but goes onto define what they see it as to ensure a focused and sharp argument. This shows to the examiner that the essay has a true understanding and builds a critical voice early on. There is a sustained discussion of the consequences of an increase in export, both short run and long run. However, the question isn't directly answered. There is no discussion of "the extent to which" and therefore this essay cannot gain the top marks.

Level of analysis

The essay in this essay is strong. What I particularly like is the progression of each point. For example it states "an increase in exports will bring about and increase in aggregate demand in the short run" but doesn't simply leave it there. It then goes onto say why this is the case, exploring the components of aggregate demand and then the effect with a diagram. The use of diagrams here is good, but it could be made stronger with a sentence or two explaining the diagrams. A simple sentence such as "An increase in exports causes aggregate demand to shift right from AD to AD1, then causing the real GDP to increase from Q to Q1." will gain credit as it displays a thorough understanding. The essay shows potential in answering the question, including "the effects are also dependent on other external forces such as multipliers in which a weak or negative multiplier would produce effects opposite to the benefits" right at the end. The key words here in answering this question are "depends upon". I always ask myself "will the same effects always happen?" which prompts a response which looks at a number of factors. This essay should've explored the multiplier effect, commenting on the size of the increase in exports affecting the improvement, and what external factors may hinder the macroeconomic performance.

Quality of writing

This essay has a good structure. The introduction is brilliant, yet the conclusion is lacking in depth. A judgement is made, yet it is assertive and doesn't fully explain why they come to that conclusion. Unfortunately, doing so will gain little credit. The style is strong, allowing for a convincing argument. Technical terms are used confidently, and spelling, punctuation and grammar are strong.


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Reviewed by groat 11/03/2012

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