The Global Economy Model Essays

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  Compare and contrast fixed, managed and floating exchange rate systems, and evaluate which is most appropriate for an economy.IB HL · Paper 1, part (b) [15] · Compare and contrast; Evaluate

  A fixed system pegs the currency and defends the peg with reserves and interest rates, a floating system lets demand and supply set the rate, and a managed system floats within limits with occasional central bank intervention. Each trades the certainty exporters and investors value against the policy freedom a central bank wants.

  This question asks you to set three exchange rate systems side by side and then judge which fits a given economy. The full answer builds each system in turn: a fixed rate pegged to another currency and held there by the central bank buying and selling reserves and adjusting interest rates; a pure float where demand for and supply of the currency set the rate with no target; and a managed float that mostly floats but is nudged within limits when the central bank intervenes. It then weighs the same systems against shared criteria: the certainty that a fixed rate gives exporters and investors against the monetary policy freedom a float preserves, the large reserves a peg can cost to defend, the discipline it imposes on inflation, and the volatility a float can bring. The judgement then turns on the part most answers skip, which system actually suits an economy given its size, openness and reserves

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  Evaluate whether trade or foreign aid is the more effective strategy for promoting economic development.IB SL · Paper 1, part (b) [15] · Evaluate

  Trade strategies such as export promotion and integration aim to raise incomes through markets, scale and foreign exchange, while foreign aid, from humanitarian relief to official development assistance and debt relief, channels resources directly to needs the market neglects. The two are often complements rather than rivals.

  This question pits two development strategies against each other and asks which works better. The full answer first defines each: trade strategies such as export promotion, diversification and joining a bloc, which aim to lift incomes through larger markets, economies of scale and foreign-exchange earnings; and foreign aid, from humanitarian relief through official development assistance and debt relief to NGO projects, which channels resources straight to needs the market leaves unmet. It then weighs them. Trade can deliver self-sustaining growth and efficiency, but it can be volatile and its gains can bypass the poorest; aid can fund the health, education and infrastructure that break a poverty cycle, but it risks dependency, leakage through weak governance and distortion of local markets. The judgement then reaches the point most answers miss, that the two are usually complements and that which matters more depends on a country's institutions and stage of development

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