11:55 M . . . Section B: The UK Construction Sector (2,4,9 marks) Please read extracts A and B thoroughly and use them to answer questions 1-3. Extract A: Indices of two components of real GDP, 2007 Q1 to 2013 Q3 115.0 1102 105.0 100.0 95 0 braz030401020304010203040102030401 02030401020304010203 2007 2008 2009 2010 2011 2012 | 2013 Key Index of services Index of construction Source: Official statistics, January 2014 Extract B: United Kingdom GDP Annual Growth Rate 3.2 2.8 218 4 2.2 2.2 2.5 2.5 12 1.3 1.2 15 1.4 2 0.8 0.9 -3.8 2008 2010 2012 6. Using extract A, calculate the percentage reduction in the construction index from Q1 2007 to Q1 2009 to two decimal places 2. marks) 7. Explain how the data in extract A shows that the construction sector is more income elastic than the service sector (4 marks) Extract C: Tales of the Unexpected Looking back, 2016 could be described as a year of unexpected events. When, contrary to many forecasts, UK citizens voted to leave the European Union, it was arguably one of the largest economic shocks to affect the UK economy in a long time. It was widely anticipated that weaker aggregate demand and significantly slower economic growth would follow, but this did not occur. In the three months to the end of July 2017 unemployment fell by 75 000, bringing the unemployment rate down to 4.3%, its lowest since 1975. Quarterly growth peaked in the final quarter of 2016 at 0.7%, though the economy has grown more slowly in the first two quarters of 2017. So why did the UK economy perform better than expected? There are several reasons. The Bank of England's Monetary Policy Committee loosened its monetary policy in an attempt to prevent a downturn in the economic cycle. This included a lower interest rate of 0.25%, a new scheme to encourage commercial banks to pass on lower borrowing costs and E70bn worth of additional money creation to boost economic activity. Since the referendum, the Bank of England have tried to dampen expectations of future rate rises, insisting that any increases will be 'gradual". The Chancellor of the Exchequer, Philip Hammond, stated that the Government was no longer committed to achieving a budget surplus by 2020. Amongst other plans, he announced more government spending on infrastructure, housing, and research and development, all designed to boost productivity. Consumer confidence did not appear to be lower and consumption remained strong. The UK economy was more resilient and adaptable than many people expected. 8. Extract B (lines 9-11) states 'The Bank of England's Monetary Policy Committee loosened its monetary policy in an attempt to prevent a downturn in the economic cycle.' Explain, using extract B and a relevant diagram, two instruments of monetary policy that may help to improve employment in the construction sector. [9 marks]
