Possible exam questions

1. Discuss the advantages and disadvantages of a floating exchange rate system on the UK economy? 25 marks

Apart from the standard focus on how pounds depreciation has affected UK macro-performance; central to this question is "the perceived attractions of the floating system in comparison to the potential
weaknesses of a fixed system; the way in which central banks may be able to intervene effectively to
reduce instability and hence the potential impact on economic performance of the countries affected."

i.e. in the last recession 1988-92 UK interest rates (above 10%)had to be increased to defend sterlings fixed value. This time round the Bank of England has been able to be relaxed about sterlings fall and not having to put up interest rates; thus operating an expansionary monetary policy. However it can not be too complacent a run on the pound would need to be avoided with higher interest rates and reversing QE to prevent inflation going out of control.

2.  Discuss the economic advantages and disadvantages of the UK’s not being a member of the Euro? 25 marks

3. Explain the distinction between comparative advantage and absolute advantage. 10 marks

4. d) Extract C (lines 12 and 13) refers to a ‘virtuous circle of trade liberalisation and economic
growth’. Evaluate the case for and against greater free trade in the world today in its impact on the UK

Export multiplier
FDI - Investment Income
Comparative advantage growth theory
Competitive advantages through specialisation and economies of scale
Use of Tariff diagram analysis and evaluation ( complex or simple diagram)

5. Discuss the impact on the UK of 'the case for and against more flexibility in EU member states budget deficits’. 25 marks

UK is a member of EU - so policy would apply to UK as well

successful counter cyclical fiscal policies result in growth - UK exports?
EU member states - sovereign debt problems - crowds out private sector Investment
risks inflation across EU - 50% UK trade with EU so UK risks importing inflation so UK forced to increase interest rates if inflation is still a target.

6. Assess the impact on UK macroeconomic performance of a prolonged period of deflation. 25 marks. Ensure careful evaluation.  June 2010