The paper "Substantial Economic Risks from the Eurozone Crisis" is a great example of an assignment on macro and microeconomics. The Eurozone crisis is still an impending challenge for the European economic block. This is due to the fact that recovery from the previous global economic crisis has been very gradual. In addition, no substantial economic growth has been recorded in the initial quarter of the year 2012 (Hewitt, 2012, p1). Many export-oriented countries depend on the Eurozone market as a major global market segment. Nevertheless, with the existing crisis in the region, export-oriented countries may or may not counter various substantial economic risks as they continue to export their products to the region.
This particular paper seeks to evaluate whether export-oriented countries such as Singapore face substantial economic risks from the Eurozone crisis. In addition, the paper will evaluate whether governments should play an active role in managing an inflationary economy. Question 1 It can be argued that export-oriented counties such as Singapore face substantial economic risks from the Eurozone crisis. One of the basic reasons is that Singapore is bound to experience a decrease in earnings from foreign exports.
Kamar (p2) highlights that the Eurozone crisis has resulted in a decline in the exchange of the Euro against the dollar. Kamar (p2) further reveals that since January 2010, the exchange rate of the euro against the dollar has reduced from 1.45 to 1.19 which is a reduction of 18%. The basic implication of the depreciation of the Euro is that there will definitely be a potential drop in terms of demand for exports by the Eurozone economies. This may therefore force export-oriented countries such as Singapore to lower the prices of there products if they want to capture the European market effectively.
As indicated in graph 1.0 a decrease in demand is bound to shift the demand curve to the left side. In addition, the equilibrium price will fall, and also the quantity demanded. As highlighted by the graph, in order for Singapore to effectively capture the Eurozone demand there is a need for the lowering prices of export products to the Eurozone market. This will therefore result in a decline in export earnings.
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