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Essay Plans Unit 2 ECON2 - Economics: Macroeconomic Performance
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Macroeconomics performance essay plansEconomic Growth
Using at least one example of each, explain how demand-side and supply-side
shocks might harm a country’s economic growth. (15)
Intro
A demand side shock is
A supply side shock is
Economic growth is one of the main macroeconomic objectives
o It adds to the competitiveness of the nation’s economy
Demand side shocks
Global recession
o Leads to reduced consumer spending
o Decreases aggregate demand
o Lowers production
o Job losses
Demand pull inflation
o Lower incomes
o Speculative demand
o People reduce spending further
AD/ AS curve
o Shift right in AD curve
Supply side shocks
Sudden increase in oil prices affecting production costs
o Reduced productivity
o Higher inflation
o Decline in output
AD/ AS curve
o Shift right in AS curve
Combined effects
Affect each other – interconnected
High inflation causes a drop in consumer purchasing power
o Further reduction in demand
o Increased uncertainty
o Investment reluctance
o Speculation
, Evaluate the likely impact of world economic growth both on the UK economy and on
individuals in the economy. (25)
Introduction
World economic growth is
In a world of globalisation and technological advancements, there is an
increasing interconnectedness of global economies
Affects UK economy because of affecting exports, imports and global
competitiveness
Affects individuals through changing prices depending on whether inflation is
present
o Cost push – price of raw imported materials
Impact on UK economy
Increased demand for UK exports
o Attraction of FDI
o Benefits for job creation and technology transfer
o Global economic growth can boost demand for UK exports abroad
o Makes UK more competitive
Technology sector
o Spread of technological advancements
o Improves productive capacity of economy
Financial services
o Reliant on FDI to run effectively
AD/ AS curve
o Shift in LRAS curve outwards
o Shift in SRAS curve outwards
Exchange rate fluctuations affecting competitiveness
o Hedging or trade agreements might mitigate exchange rate risks
o Booming world economy might intensify global competition
o Make it more difficult for UK industries to compete
Traditional manufacturing sectors
o Other countries have more efficient production process
o Hinders competitiveness
Cost push inflation
o Increase in price of raw materials
o Increases costs for firms
o Firms pass on increased price to consumers
o Consumers have less disposable income and growth is limited
Impact on individuals in the UK economy
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