Reference no: EM132367797 , Length: word count:1800

Unit: EC 2 Economics Assignment Brief - Resubmission

The assignment for Economics consists of one task you need to complete; a case study analysis.

Case Study Analysis - Answers to this case study - UK's economic recovery and trade balance.

The UK's balance of trade in goods and services improved at the start of the 2008 - 2009 recession as the value of imports fell at a faster rate than exports. However, since the UK and global economies have started to recover, UK imports have grown at a faster rate than exports despite the large depreciation of the pound since the second quarter of 2007. The reduction in labour productivity during the recession also affected the competitiveness of home produced goods.

Since the middle of 2009, imports have increased by 7%. The majority of the rise in imports since the mid-2009 relates to increased imports of raw materials, semi- manufactured goods and vehicles. As the economy recovers, the manufacturing and construction sector will buy more inputs from abroad and hence some increase in imports is inevitable. However, the forthcoming rise in taxation, needed to reduce the budget deficit, should help to lessen the growth in household spending on foreign goods.

The UK's deficit on trade in goods widened to a record high in July after imports rose sharply and exports fell from the previous month. The trade deficit was £8.7bn, the biggest deficit since figures began in 1998. However, trade in services produced a surplus of £3.8bn. Nevertheless, the deficit on trade in goods and services widened to its highest value in almost five years.

Imports increased by 3.1%, which was largely driven by an increase in imports of chemicals, pharmaceuticals, oil and semi-manufactures.

Although some of the deterioration reflects a sharp rise in imports, which is an indication of the strength of domestic demand, July's dreadful trade figures cast doubt over the ability of external trade do drive the recovery in the UK economy.

With cuts in public spending and higher taxes down the line, the government was hoping that the recovery would be secured by an injection of demand resulting from more exports and reduced spending on imports.

Source: News reports, 2010.

Required: You are required to study the above extracts and answer the following questions. Use examples and information from your own independent research and the case study itself to illustrate and support your points and arguments.

i. Explain the term "recovery". Use a diagram to illustrate your answer.

ii. Explain how the value of imports into the UK is likely to be affected by a fall in the value of the British pound.

iii. Identify and explain the possible benefits of a weak British pound to the UK economy in relation to the UK's current account, economic growth, unemployment and inflation.

iv. Evaluate the impact of a rise in taxation and cuts in public spending on the UK trade deficit.

v. Using the data in the extracts and your knowledge of economics, evaluate the significance of a continued deficit on the current account of the balance of payments for the UK economy, identifying drawbacks and potential benefits.

1. A conclusion based on your analysis and recommendations.

2. A complete list of reference or bibliography (Harvard style).