Th4.5: External Shocks

Question 1

Why are the world’s economies increasingly interdependent?

Answer 1

due to globalisation

Question 2

What could the government use expansionary policy to do?

Answer 2

reduce the impact of a fall in GDP

Question 3

What could the government use deflationary policy to do?

Answer 3

reduce the impact of inflation

Question 4

Macroeconomic policies can be used to combat the effects of negative shocks to the economy, one being…

Answer 4

a commodity price shock, where oil prices increase greatly

Question 5

What can changes in exchange rates do?

Answer 5

cause inflation within the country or could cause a fall in growth and a poor balance of payments, both of which the government can attempt to solve through various methods

Question 6

What is political instability in the UK likely to do?

Answer 6

political instability in the UK or in other countries is likely to impact the economy, meaning the government needs to take action