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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 (HS2) project is expected to have a significant impact on aggregate supply in the UK. One likely impact is that the project will lead to an improvement in the UK’s capital infrastructure.
By investing £56 billion in the rail link, the government enhances transportation networks which can facilitate more efficient movement of goods and people. This improvement will increase productivity by reducing journey times by as much as 50%, allowing workers to reach their jobs quicker and enhancing overall economic activity.
Furthermore, a more efficient transport system will encourage businesses to operate more effectively, thus increasing the aggregate supply. Market participants can expect a corresponding increase in the productive capacity of the UK economy, represented by a rightward shift in the aggregate supply curve.
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 graph from 1st January 2018 to 1st January 2019 likely shows a depreciation of the pound during that period. A weaker pound makes UK exports cheaper and imports more expensive.
As a result, UK goods may become more attractive in foreign markets, potentially increasing export volumes. Simultaneously, more expensive imports may lead domestic consumers to seek local alternatives. Such shifts typically contribute to an improvement in the UK’s current account balance, as the higher export revenues and reduced import expenditures can enhance the overall balance of payments.
Therefore, the depreciation of the pound is likely to have a positive impact on the UK current account by increasing export competitiveness.
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.
Government spending on infrastructural projects like the High Speed 2 rail link constitutes capital expenditure as it involves long-term investment aimed at enhancing public infrastructure, which will serve the economy over many years.