Unit 4 Economics: Jun 11 The European Context 06

06- Lines 35-36 argues that a more ambitious set of common macroeconomic policies would help speed recovery in the UK 

Using the data and your economic knowledge, assess the impact on the UK economy of a recovery in the EU as a whole.

Introduction and Development 

  • EU recovery – meaning countries in the Eurozone have gotten out of their economic decline to show some signs of growth. 
  • This could impact the UK aswell as they are part of the eurozone. Can help them in several ways 

Point 1- Trade leading to multiplier effect

  • As other countries recover this could mean there could be increase trade around the EU.
  • This would be a positive impact for the UK as this could mean more exports could be sold therefore this would lead to an injection in the circular flow of income. 
  •  as exports is part of aggregate demand ( def) leading to potential economic growth. 
  • Therefore could potentially lead to a multiplier effect—> increasing employment, and overall the confidence of people after a long financial crisis.

However-

  • Depends on the extent of recovery as it could only be a small margin 0.1% growth which might make little difference 
  • There has been a wider divide between the more developed and the less developed in the EU and the smaller countries might have not recovered but instead declined. So this might dampen down some of the UK’s trading potential with these countries.

Point 2- Balance of Payments on Current Account improved

  • As said exports would be likely improve as trade would tend to increase between these countries due to these increase in confidence. 
  • A weaker pound would help as the recession most likely had meant there was a decrease in demand for sterling leading to a depreciation making our exports cheaper.

However 

  • Depends on elasticity of our goods- are they better than German or French goods in terms of quality?
  • How fast is the recovery if there is a slow recovery countries from the EU still have their people not confident. 
  • As there is appreciation due to potential greater demand for our this might affect firms who have their raw materials imported have their costs increase in price.

Conclusion-

  • Overall we have to consider how fast the recovery and how much has it recovered. Has it just recovered little margins from a long recession.
  • However if there was sustained recovery it would benefit the UK in terms of trade leading to aggregate demand increase so a potential growth our economy.
  • This would lead to an multiplier effect. 
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s