AS Macro Revision Question (1)
Figure 1: Economic Growth and the Current Account Balance in the UK
UK Real GDP and the Current Account Balance
Top pane: Real GDP % change Bottom Pane: Current account balance (% of GDP)
4
3
Percent
2
1
0
-1
-2
-3
-4
-5
0.0
Percent
-1.0
-2.0
-3.0
-4.0
06
07
08
09
11
10
Real GDP, precentage change from previous period, Constant Prices
Current account balance, % of GDP
Source: Reuters EcoWin
Figure 2: Selected macroeconomic indicators for the UK (2007-2011)
2007
2008
2009
2010
2011

Sterling / US
$ Exchange
Rate
Annual
average
2.00
1.85
1.57
1.55
1.60
UK Exports of
goods and
services *
Annual %
change
-1.3
1.3
-9.5
7.4
4.6
UK Imports
of goods and
services *
Annual %
change
-0.9
-1.2
-12.2
8.6
1.2
Unemployment
rate (LFS)
% of labour
force
5.3
5.7
7.7
7.8
8.4
Consumer
price
inflation
% change in
prices
2.3
3.6
2.2
3.3
4.5
Data for exports and imports is inflation-adjusted and shows changes in volumes of exports and imports
Source: OECD World Economic Outlook, UK Statistics Commission
Question:
Using the data and your own knowledge, to what extent might a fall in the value of the
exchange rate help to bring about a recovery for the UK economy? (30 marks)
AS Macro Revision Question (2)
Interest Rates and the Distribution of Income and Wealth
Extract 1:
Changes in interest rates on loans and savings deposits can have - over time - a sizeable effect
on the distribution of income and wealth in a country. Since March 2009 policy interest rates in
the UK have been held at an historic low of 0.5%. The main aim has been to increase demand
and sustain a recovery from the recession. But some commentators are concerned that a
period of low interest rates may be causing unintended changes in income and wealth
inequality.
Figure 1:
Interest rates on savings and loans in the UK
20.0
20.0
Bank Loan Interest Rate (%)
18.0
18.0
16.0
16.0
14.0
14.0
Credit Card Interest Rate (%)
12.0
12.0
10.0
10.0
8.0
8.0
6.0
Annual % Increase in the Cost of Living
6.0
4.0
2.0
Interest rate (per cent)
Interest rate (per cent)
Interest rates (per cent) on a selection of different loans and savings accounts
4.0
Interest Rate on Savings Accounts (%)
0.0
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan
08
09
10
11
12
2.0
0.0
Year and Month
Source: Bank of England
Question:
Using Figure 1 and your own knowledge, discuss two consequences of a policy of low interest
rates on the distribution of income and wealth. (12 marks)