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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 High Speed 2 rail project is expected to increase aggregate supply (AS) in the UK. Firstly, the investment of £56 billion will enhance the UK’s capital stock, leading to improved productivity and efficiency in the economy. As the infrastructure develops, it can facilitate faster transportation of goods and people, thus reducing journey times significantly, by as much as 50%. This would effectively raise the potential output of the economy. Additionally, as illustrated in the supply and demand diagram, the increase in aggregate supply would shift the AS curve to the right, indicating higher levels of production at every price level. Overall, the project aims to improve overall economic capacity and efficiency.
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
During the specified period, if the exchange rate of the pound depreciated, it would likely make UK exports cheaper and imports more expensive. As a result, the total value of exports could increase, enhancing the current account balance. Conversely, if the pound appreciated, the opposite would occur, potentially leading to a deterioration of the current account as exports become more expensive for foreign buyers. Therefore, the nature of the exchange rate movement would directly affect the trade balance component of the current account.
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 like the High Speed 2 rail link is classified as capital expenditure, aimed at creating long-term assets and improving national productivity.