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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 construction of the High Speed 2 rail link is expected to increase aggregate supply in the UK for several reasons. Firstly, the investment of £56 billion will enhance the productivity and efficiency of the UK economy. This increase in investment improves the capital available in the economy, which can lead to higher capacity and output.
Furthermore, the project aims to reduce journey times by as much as 50%, which will allow workers to commute more efficiently. Efficient transport links can enhance productivity as individuals can reach their workplaces quicker, thereby increasing the overall efficiency of the labor force. In summary, the project's impact on aggregate supply can be characterized by:
- Increased Capital: The significant investment will provide better infrastructure, enhancing economic capacity.
- Increased Efficiency: Reduced journey times will improve worker productivity, aiding in overall economic growth.
Step 2
Explain the likely impact of the change in the exchange rate of the pound shown in the graph from 1st January 2018 to 1st January 2019 on the UK current account of the balance of payments.
Answer
From the graph, analysis indicates a depreciating pound over the specified period. The likely impact on the UK current account is as follows:
A depreciating currency can make exports cheaper for foreign buyers while making imports more expensive for domestic consumers. As a consequence, demand for UK exports may increase, leading to an improvement in the current account balance.
Conversely, the increased cost of imports can reduce consumption of foreign goods, further benefiting the domestic market. Overall, this situation may improve the UK current account deficit or even lead to a surplus, depending on the elasticity of demand for exports and imports.
Step 3
Government spending on the High Speed 2 rail link is an example of which of the following?
Answer
The correct option is B Capital expenditure. This is because government spending on such infrastructure projects is classified as capital expenditure since it pertains to investment in long-term assets that will provide economic benefits over time.
- A (Automatic stabilisers): This is incorrect, as automatic stabilisers are mechanisms in the economy that automatically increase or decrease government spending or taxation as economic activity changes.
- C (Current expenditure): This is also incorrect because current expenditure refers to day-to-day spending and operational costs, rather than investments in long-term infrastructure.
- D (Transfer payments): This option is incorrect as transfer payments involve payments made without goods or services being received in return, often in the form of welfare payments or subsidies.