What is meant by internal devaluation?

What is meant by internal devaluation?

Internal devaluation is an economic and social policy option whose aim is to restore the international competitiveness of some country mainly by reducing its labour costs – either wages or the indirect costs of employers.

What causes currency devaluation?

Understanding Devaluation One reason a country may devalue its currency is to combat a trade imbalance. Devaluation reduces the cost of a country’s exports, rendering them more competitive in the global market, which, in turn, increases the cost of imports.

What is external devaluation?

An external devaluation happens when a country operating with a fixed or semi-fixed exchange rate system decides to deliberately lower the external value of their currency against one or a range of other currencies. A devaluation of the currency means adomestic currency buys less of a foreign currency.

What is the internal value of money?

The internal value of money is the value of money when buying goods and services. This is the real value of money and it is measured by the purchasing power of money. The external value of money is what the currency is worth, as measured in foreign currency. This is the exchange rate.

How can I be competitive internationally?

International competitiveness is determined by the following factors:

1. Labour wages.
2. Inflation.
3. Labour productivity.
4. Exchange rate.
5. Infrastructure.
6. Legal & Regulatory System.

Is currency devaluation good or bad?

Devaluation tends to improve a country’s balance of trade (exports minus imports) by improving the competitiveness of domestic goods in foreign markets while making foreign goods less competitive in the domestic market by becoming more expensive.

What is internal and external value of money?

Relationship between internal and external value of money The internal value of money is the value of money when buying goods and services. This is the real value of money and it is measured by the purchasing power of money. The external value of money is what the currency is worth, as measured in foreign currency.

What happens to prices when money supply increases?

The quantity theory of money states that the value of money is based on the amount of money in the economy. Thus, according to the quantity theory of money, when the Fed increases the money supply, the value of money falls and the price level increases.