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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 likely impact of the High Speed 2 rail link project on aggregate supply in the UK includes an increase in aggregate supply due to improved infrastructure. This project will enhance the efficiency of transportation and increase the productivity of the workforce by reducing journey times, thereby allowing firms to operate more effectively. The estimated investment of £56 billion will contribute to higher levels of capital, which is essential for growth in aggregate supply.
As depicted in the accompanying diagram, the increase in aggregate supply is illustrated by a rightward shift of the Aggregate Supply (AS) curve, leading to a potential increase in the economy’s output level, represented from Q to Q1 with a corresponding reduction in price levels from P to P1.
Step 2
Explain the likely impact of the change in the exchange rate of the pound...
Answer
The likely impact of the change in the exchange rate of the pound, as depicted in the graph, indicates a depreciation of the pound during the specified period. A weaker pound generally makes exports cheaper and imports more expensive. Consequently, this could potentially lead to an improvement in the UK current account balance as UK goods become more competitive in international markets, stimulating an increase in export volumes. Conversely, the higher costs of imported goods may reduce the demand for imports. This shift can enhance the UK’s trade position, positively affecting the overall current account balance.
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 capital expenditure refers to the government’s investment spending aimed at creating or maintaining fixed assets, such as infrastructure projects like the High Speed 2 rail link.