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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
One likely impact of the High Speed 2 (HS2) project on aggregate supply (AS) in the UK is that it will lead to an increase in aggregate supply. The investment of £56 billion in infrastructure will enhance productivity by improving transportation efficiency between major cities like London, Manchester, and Leeds. This reduction in journey times, potentially by as much as 50%, will facilitate quicker movement of labor and goods, thus raising overall productivity in the economy. Additionally, the increased capital availability will likely foster further development in various sectors, contributing positively to the UK economy.
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
The change in the exchange rate of the pound likely resulted in a depreciation during the specified period. A weaker pound makes UK exports cheaper and imports more expensive. Consequently, this could improve the UK current account as export growth may outpace import growth, leading to a more favorable trade balance. Businesses could experience increased demand for their goods abroad, positively influencing overall economic activity.
Step 3
Government spending on the High Speed 2 rail link is an example of which of the following?
Answer
The correct answer is B: Capital expenditure. This is because government spending on infrastructure projects, such as the High Speed 2 rail link, is considered capital expenditure as it involves significant investment in long-term assets.