Economic decline in the UK

Question 1

GDP has declined past __ quarters, __ years of incomes decreasing per person

Answer 1

GDP has declined past 8 quarters, 2 years of incomed decreasing per person

Question 2

How much is the UK worth

Answer 2

UK GDP is about £2.27 trn 2023

Question 3

Causes of economic decline in UK

Answer 3

LRAS:
I- Investment has fell below trend rate growth pre 2016 because of: Brexit, low confidence.
I- Confidence lower from Brexit+ Covid

SRAS/AD (Economic cycle indicators):

AD- Cut in taxes- trickle down economics cut. the £100bn borrowing caused the bond market to crash, and the interest rates to increase the the £ to fall. The budget had to be reversed

AD- Housing- 2-3 year mortgages- interest rates change every now and then

AD- X-M- SRAS shift inwards bec of currency devaluation

Question 4

When has investment levels fell below its trend rate growth?

Compare this to the US economy

Answer 4

• Investment has fell below trend rate growth pre 2016 because of: Brexit, low confidence.
• 2022- US passed the Inflation Reduction Act- $257bn subsidies to green investment- increased demand and LRAS in the economy. UK has not

Question 5

AD - explain how Truss’s cut in taxes from the mini budget led to a reduction in AD

Compare this to the US economy

Answer 5

trickle down economics - cut tax. the £100bn borrowing to supplement tax cuts caused the bond market to crash.
The government had to borrow more. This increase in demand for bonds had reduced the prices.
Interest rates to increase the the £ to fall. The budget had to be reversed

US deficit increased but bond market good

Question 6

How do housing policies differ in the US and UK?

Answer 6

• Housing- 2-3 year mortgages- interest rates change every now and then
  
  • US housing- 30 year mortgages- houses protected by interest rates

Question 7

Currency devaluation example uk

Answer 7

Brexit devaluation of the £ led to higher import prices- Brexit Food costs 2021- 22—> + £210 per household. (Centre for Economic Performance (CEP) at LSE, Dec 2022) Increase inflation

Question 8

Confidence- saving ratios increased to__% in __ quarter of ___, showing pessimism in the UK economy.

• 2016- Brexit+ Covid. Example on how confidence fell

Answer 8

Confidence- saving ratios increased to 10.1% in 3rd quarter of 2020, showing pessimism in the UK economy.

• Confidence- Led to investment levels to reduce drastically, especially in covid from £56,000 million to £46,000 million. Below trend rate growth since 2016.

Question 9

US saving ratios reduced to __% to ____, increase in consumer credit.

Answer 9

US saving ratios reduced to 3.7% to post war periods 2023, increase in consumer credit.