Question

Each month, the Sports Exports Company (a U.S. firm) receives an order for footballs from different British sporting goods distributors. The monthly payment for the footballs is denominated in British pounds, as requested by the British distributor. Jim Logan, owner of the Sports Exports Company, must convert the pounds received into dollars.

1. Explain how a higher level of inflation in UK affect Sports Exports Company (assume U.S, inflation remains constant.

2. How could a decreasing level of national income in UK affect Sports Exports Company?

Answer 1

1) As mentioned in the question, Assuming the U.S inflation remains constant. Inflation is directly affects the price of goods and higher inflation causes higher price of goods and lower inflation benefiting the buyer forgetting it in a lower price.

Higher level of inflation will effect UK sports exporter because, these will directly impacts the prices of sport goods to increase and thus result in Sales of sports goods gets decreased because U.S importer will opt for for countries who exports the same quality of sports good at there reasonable price.

2) decreasing level of national income in UK affect Sports Exports Company?

Answer- national income will imply spending done by a household (consumption), and firms (investment), government by  (government spending), by and rest of world (net and exports). AD shows the amount of that spending different price level

Demand and supply - These are the only effects will comply with

Consumption- Consumers stop buying
Investments- sports companies
Government spending
Net exports- will reduce drastically
Sports Company are directly related with Demand of exports affected with higher inflation resulting from

Households to firms- decreases the supply and demand shifts to other options like countries with moderate inflation and resulting UK sports exporter to shutdown the Sports business