Running the economy
(Part 1, 5 questions – 1000 words)
(Part 2, essay question – 1600 words)
Making use of the chart in Figure 1, and the two extracts below, and illustrating your arguments using the IS diagram, discuss some key advantages and disadvantages of using fiscal and monetary policy to tackle the situation facing the UK in spring 2013.
Source: Bank of England (2013)
Figure 1 UK base rate January 2000 to March 2013
Fall in manufacturing fans UK triple-dip recession fears (Reuters, 12 March 2013)
British manufacturing output fell in January at the fastest pace since June, reinforcing fears that the economy has tipped into its third recession since ...view middle of the document...
British exporters have been trying to reduce their exposure to sluggish demand in Europe and sell more to emerging markets, but data suggests the rebalancing will take time.
Weak industrial production was the main drag on Britain’s economy in the final three months of 2012, shaving 0.3 percentage point off quarterly growth and contributing to that quarter’s fall in GDP.
A purchasing managers’ survey on the much bigger services sector last week was more encouraging, showing the sector, which accounts for around three quarters of British GDP, grew in February at its fastest pace in five months.
However, British data has been volatile and manufacturing, which accounts for 10 per cent of GDP, is showing persistent signs of weakness. A survey of purchasing managers revealed an unexpected contraction in the manufacturing sector in February.
“The (economic) numbers have been relatively poor and it is looking an increasingly close-run call as to whether the economy contracts in the first quarter,” NIESR economist Simon Kirby said.
Adapted from Dmitracova, O. and Fincher, C. (2013)
United Kingdom business confidence (Trading Economics, April 2013
Business Confidence in the United Kingdom increased to 12.80 in the first quarter of 2013 from 4.20 in the fourth quarter of 2012. Business Confidence in the United Kingdom is reported by the ICAEW/Grant Thornton UK. Historically, from 2004 until 2013, the United Kingdom...