Assess the extent to which a depreciation of the Pound will positively effect economic performance within the Uk.

Intro: define depreciation and economic performance

Analysis: depreciation leads to increase in exports (less expensive in comparison to foreign goods), and decrease in imports (more expensive in comparison to domestic goods). Exports minus imports a component of aggregate demand. Therefore boosts AD - show on diagram.

Eval: depends on the Marshall Lerner condition. Are the price elasticise of demand for exports and imports cumulatively greater than 1? If not, there will be a lag in positive economic reaction as imports do not fall in reaction to real price rise, and exports do not rise. Draw the J curve and explain.