In order to see economic transformation in T&T over the next five years, the new government has to focus on making the business environment in T&T more competitive. One of the ways to do this is by depreciating the exchange rate. This is the contention of economic consultant and former director of Economics for the Caribbean Development Bank (CDB) Dr Justin Ram, who told the Business Guardian: "Right now the exchange rate is going against production and going against competitiveness." According to Ram, the government needs to start thinking about the exchange rate as a mechanism that enhances competitiveness and as something that leads to people buying more locally produced goods and foods but also provides incentive to export. The foreign exchange system in T&T is underpinned by a managed float regime. A managed float regime is a monetary position adopted by a country's Central Bank in which exchange rates fluctuate from day to day, but the Central Bank attempts to influence the country's exchange rates by buying and selling currencies to maintain a certain range. Currently, the T&T dollar is managed at around $6.79 to US $1. Depreciating the exchange rate would weaken the TT dollar against the US dollar, so that it would cost more local currency to purchase US$1. I. Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain two differences between a fixed exchange rate regime and a floating exchange rate regime. If Trinidad and Tobago has a current account deficit. Discuss three strategies that the government can implement to correct the deficit. II.
In order to see economic transformation in T&T over the next five years, the new government has to focus on making the business environment in T&T more competitive. One of the ways to do this is by depreciating the exchange rate. This is the contention of economic consultant and former director of Economics for the Caribbean Development Bank (CDB) Dr Justin Ram, who told the Business Guardian: "Right now the exchange rate is going against production and going against competitiveness." According to Ram, the government needs to start thinking about the exchange rate as a mechanism that enhances competitiveness and as something that leads to people buying more locally produced goods and foods but also provides incentive to export. The foreign exchange system in T&T is underpinned by a managed float regime. A managed float regime is a monetary position adopted by a country's Central Bank in which exchange rates fluctuate from day to day, but the Central Bank attempts to influence the country's exchange rates by buying and selling currencies to maintain a certain range. Currently, the T&T dollar is managed at around $6.79 to US $1. Depreciating the exchange rate would weaken the TT dollar against the US dollar, so that it would cost more local currency to purchase US$1. I. Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain two differences between a fixed exchange rate regime and a floating exchange rate regime. If Trinidad and Tobago has a current account deficit. Discuss three strategies that the government can implement to correct the deficit. II.
Chapter1: Making Economics Decisions
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Transcribed Image Text:In order to see economic transformation in T&T over the next five years, the new government
has to focus on making the business environment in T&T more competitive. One of the ways
to do this is by depreciating the exchange rate.
This is the contention of economic consultant and former director of Economics for the
Caribbean Development Bank (CDB) Dr Justin Ram, who told the Business Guardian: “Right
now the exchange rate is going against production and going against competitiveness."
According to Ram, the government needs to start thinking about the exchange rate as a
mechanism that enhances competitiveness and as something that leads to people buying
more locally produced goods and foods but also provides incentive to export.
The foreign exchange system in T&T is underpinned by a managed float regime. A managed
float regime is a monetary position adopted by a country's Central Bank in which exchange
rates fluctuate from day to day, but the Central Bank attempts to influence the country's
exchange rates by buying and selling currencies to maintain a certain range.
Currently, the T&T dollar is managed at around $6.79 to US $1. Depreciating the exchange
rate would weaken the TT dollar against the US dollar, so that it would cost more local currency
to purchase US$1.
I.
Assume, T&T decides to switch to a fixed exchange rate regime. Identify and explain
two differences between a fixed exchange rate regime and a floating exchange rate
regime.
If Trinidad and Tobago has a current account deficit. Discuss three strategies that the
government can implement to correct the deficit.
II.
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