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2. Annual percentage change in average UK house prices With reference to the chart, which one of the following is true? Average UK house prices: A fell in August 2020 B fell in November 2018 C rose the fastest in May 2021 D stayed constant in 2018 With reference to the chart on the previous page, explain the likely impact of an increase in average house prices on UK consumption. - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 2
Question 2
2. Annual percentage change in average UK house prices With reference to the chart, which one of the following is true? Average UK house prices: A fell in August ... show full transcript
Worked Solution & Example Answer:2. Annual percentage change in average UK house prices With reference to the chart, which one of the following is true? Average UK house prices: A fell in August 2020 B fell in November 2018 C rose the fastest in May 2021 D stayed constant in 2018 With reference to the chart on the previous page, explain the likely impact of an increase in average house prices on UK consumption. - Edexcel - A-Level Economics A - Question 2 - 2022 - Paper 2
Step 1
With reference to the chart, which one of the following is true?
Answer
The correct answer is C: "rose the fastest in May 2021." This is evident from the chart, which shows a significant increase in house prices in that month compared to the others mentioned.
- Option A is incorrect because house prices rose in August 2020.
- Option B is incorrect as house prices also increased in November 2018.
- Option D is incorrect since house prices were not constant throughout 2018, but showed fluctuations.
Step 2
With reference to the chart on the previous page, explain the likely impact of an increase in average house prices on UK consumption.
Answer
An increase in average house prices typically leads to a wealth effect, where homeowners feel wealthier and may be more inclined to spend. This increase in consumption can be attributed to several factors:
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Reference to Wealth Effect: As homeowners see an increase in the value of their properties, they may feel more financially secure and willing to make larger purchases.
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Increased UK Consumption: Higher house prices can lead to increased consumer spending as homeowners may use home equity to finance expenses.
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Mortgage Equity Withdrawal: Homeowners may withdraw equity from their homes to spend on consumption, enhancing overall economic activity.
For instance, in November 2018, house prices increased by approximately 2% annually, leading to greater consumer confidence, which in turn corresponds with higher spending and reduced savings.
This relationship demonstrates how housing market dynamics can significantly impact broader economic consumption trends.