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Brexit means a bumpy road ahead for the U.K. economy. The decision by the U.K. people to leave the European Union has already brought a

Brexit means a bumpy road ahead for the U.K. economy.

The decision by the U.K. people to leave the European Union has already brought a sharp fall in the value of the pound and is expected to lower business and household spending.

Source: Financial Times, June 24, 2016

  1. a. Explain the effects of a fall in the value of the U.K. pound and lower spending by businesses and households on U.K. aggregate demand and aggregate supply.

b. The U.K. economy in 2016 was close to full employment. Use the AS-AD model to show the effect on U.K. real GDP of the effects of Brexit described in the news clip.

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