I really need someone to help me structure and answer this question
Using the data and your economic knowledge, assess the likely impact of substantial
cuts in public expenditure on the performance of the UK economy
Can someone please help me?
25 marker help watch
- Thread Starter
- 16-05-2013 00:29
- 16-05-2013 01:10
Here's how I would structure it, not saying it's the best way, but it works for me
Introduction - define public expenditure and/or performance of the UK economy(economic growth, inflation, unemployment and the balance of payment).
Make a point, or a quote from the extract, obviously I don't have the data so I can't give an example of what you could quote. Analyse this point and draw a diagram to assist your analyse and then evaluate this point.
Cuts in public expenditure can help to reduce inflationary pressure in the economy. This is because public expenditure( government spending) is a component of aggregate demand(C+I+G+(X-M)). And therefore cutting government spending will lead to a reduction in aggregate demand, the fall in aggregate demand may even be greater because of a negative multiplier effect. For instance if the government cuts public sector wages then consumers will have lower disposable income and thus will spend less, therefore consumption which is another component of aggregate demand will also decrease.
*Draw a decrease in aggregate demand diagram.
The fall in aggregate demand from AD1 and AD2 will cause a fall in real GDP from Y1 to Y2. Because of this fall in demand, businesses will receive fewer orders, thus making lower revenues and profits. As a result some firms will reduce their prices in order to try attract more customers and there will be a fall in the level of demand pull inflation from P1 to P2. Some firms may react to the fall in demand for orders by cutting the size of their workforce in order to reduce their cost and maintain their profit margin, therefore there will be an increase in cyclical unemployment.
The size of the fall in aggregate demand will depend on the size of the cuts to public expenditure. The larger the cuts to expenditure the larger the fall in aggregate demand will be and thus the larger the increase in unemployment and the larger the fall in the price level. The effects of the fall in aggregate demand will depend upon the steepness of the aggregate supply curve. In the short run this is likely to be shallow and therefore the fall in aggregate will have little effect on the price level, but a large effect on the level of economic growth and unemployment. Where as, in the long run the aggregate supply curve is likely to be much steeper, and therefore a decrease in aggregate demand will have a small effect on economic growth and a much larger impact of inflation.
Then make another point following a similar structure to this, with another diagram, for instance cutting business grants causing a fall in aggregate supply.
Then do a concluding paragraph, summing up the main points you made and all the economic impacts and their depend on factors. The conclusion only needs to be short though, say a few sentences.
Remember to refer to the data and actually quote sentences or figures. Such as... Extract B line 3 states that 'Unemployment is likely to rise in a recession'. Without using the data you cannot achieve above 21 marks.
hope this helps a little
- Thread Starter
- 16-05-2013 10:37
Thanks a lot This is very helpful