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Exporting Raw Materials and Economic Outcomes

Question

Discuss whether a country exporting its raw materials always benefits its economy.

Category:

International Trade and Exchange Rates

Frequently asked question

Preview Answer

I. 🍃Introduction
- Brief explanation of the topic

II. Reasons why exporting can be beneficial (up to ➡️5 marks)
- Generate export revenue
- Improve current account position
- Increase total demand
- Lead to economic growth
- Cause a rise in employment
- Raw materials are highly priced and in inelastic demand

III. Reasons why exporting may not be beneficial (up to ➡️5 marks)
- Cause demand-pull inflation
- Enable foreign countries to compete with finished products
- Increase imports of finished products
- Deplete raw materials
- Reduce ability to produce and export in the future

IV. Possible effect on the exchange rate (up to ➡️3 marks)
- May lead to an appreciation in the exchange rate
- Advantage: more imports can be purchased with the same volume of exports
- Disadvantage: domestic products may be less internationally competitive

V. 👉Conclusion
- Summary of the points discussed
- Final thoughts on the topic

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