Question

Why would a country seek to drive the value of its currency down? should world economic powers help developing and low-income countries achieve better standing (beyond foreign investment by firms)? Should the government support a protectionist approach to all international trade? How could they do this?

Answer 1

A country would seek to drive the value of its currency down in order to increase the exports of its domestically produced products. This is because lowering down the value of the domestic currency would make the domestic products cheaper for the foreigners, and thus the foreigners will demand more of these products.

Yes, the world economic powers should help developing and low-income countries achieve better standing. This is because by doing so, the developed countries could increase the export of their products in these developing and under-developed countries, where people may not be able to afford these products due to the present low-income levels.

No, the government should not support the protectionist approach. Because as the world economic history suggests, having a protectionist approach has ultimately led to the downfall of that particular economy. For example, in case of India, protectionist approach until 1991 eventually led to a financial crisis and the government was forced to make certain drastic reforms in order to deal with the financial crises.

The govt. should instead provide its local producers with better production technology so that the products that are manufactured by them are at par with the products that are manufactured by the foreign companies.