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A number of business groups have signed an open letter to the UK Government asking it to commit to delivering the full High Speed 2 rail link - Edexcel - A-Level Economics A - Question 4 - 2021 - Paper 2
Question 4
A number of business groups have signed an open letter to the UK Government asking it to commit to delivering the full High Speed 2 rail link. This will connect Lond... show full transcript
Worked Solution & Example Answer:A number of business groups have signed an open letter to the UK Government asking it to commit to delivering the full High Speed 2 rail link - Edexcel - A-Level Economics A - Question 4 - 2021 - Paper 2
Step 1
Explain one likely impact of this project on aggregate supply in the UK.
Answer
The High Speed 2 rail link is expected to have a significant positive impact on aggregate supply (AS) in the UK. One likely impact is an increase in the UK's productive capacity, as the improved infrastructure facilitates faster transportation. With a budget of £56 billion, this project will enhance connectivity between major cities, leading to a more efficient distribution of resources.
As journey times are reduced by as much as 50%, labor markets will be more accessible, allowing workers to commute more efficiently. This increased access can lead to a rise in productivity as individuals can reach their workplaces quicker, thereby contributing to an increase in the overall output of the economy. Consequently, the aggregate supply curve shifts to the right, reflecting an increase in potential economic output.
Step 2
Explain the likely impact of the change in the exchange rate of the pound.
Answer
The change in the exchange rate of the pound between January 2018 and January 2019 is likely to have an impact on the UK’s current account. If the pound depreciated during this period, UK exports would become cheaper for foreign buyers, likely resulting in an increase in export volumes. Conversely, imports would become more expensive, which may lead to a decrease in import volumes.
The overall effect would be an improvement in the trade balance, contributing to a better current account position. This adjustment helps enhance the balance of payments by potentially increasing the inflow of foreign currency as exports rise and reducing outflows from imports.
Step 3
Government spending on the High Speed 2 rail link is an example of which of the following?
Answer
Government spending on the High Speed 2 rail link falls under capital expenditure (B). Such spending is classified as capital because it involves investment in infrastructure meant to increase the productive capacity of the economy, as opposed to current expenditures which are for immediate consumption.