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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 link project is expected to have a significant impact on aggregate supply in the UK. One likely impact is an increase in aggregate supply due to enhanced connectivity and productivity. This is because the new rail link will reduce journey times between major cities, thereby:
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Improving Efficiency: Faster travel times allow workers to commute more efficiently, potentially increasing productivity in the workforce. Businesses can also transport goods more rapidly, enhancing overall operational efficiency.
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Encouraging Investment: The £56 billion investment is likely to improve the capital infrastructure within the UK, encouraging further investments in complementary sectors, thereby boosting economic growth.
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Right Shift in AS Curve: A correct diagram illustrating this impact would show a rightward shift of the Aggregate Supply (AS) curve, indicating an increase in the total output of goods and services in the 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 from 1st January 2018 to 1st January 2019 likely had a significant impact on the UK current account balance. If the pound depreciated during this period:
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Exports become Cheaper: A weaker pound makes UK exports cheaper for foreign consumers, likely leading to an increase in export volumes.
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Imports become Expensive: Conversely, the depreciation would make imports more costly, reducing the volume of imports as domestic consumers switch to cheaper local products.
Overall, these dynamics could lead to an improvement in the current account balance, as the increase in export revenue outweighs the costlier imports.
Step 3
Government spending on the High Speed 2 rail link is an example of which of the following?
Answer
The correct choice is B: Capital expenditure. This classification is appropriate because capital expenditure refers to the funds used by a government or organization to acquire, upgrade, and maintain physical assets such as buildings, infrastructure, and equipment. The investment in the High Speed 2 rail link is a long-term investment aimed at developing the country's infrastructure.