Part B. SHORT ANSWERS: Analysis and Application [36 marks]

[There are three (3) main questions to be answered with sufficient explanations and where relevant using

well-labelled, hand-drawn diagrams with accuracy.]

Q1 - Fiscal policy austerity response in the UK using the multiplier AD model [8 marks]

Some critical commentors argue that austerity measures adopted by the UK government since 2010

have done little to promote private investment and sustain economic growth, as pointed out in these

articles (listed in chronological order):

Gilchrist, Karen (2023) 'UK economy in growth 'doom loop' as business investment slumps versus G7 peers, think tank says', CNBC, 20th June, available:

https://www.cnbc.com/2023/06/20/uk-economy-in-growth-doom-loop-as-investment-slumps-versus-g7-peers.html

Partington, Richard (2023a) 'Using austerity economics to crush UK inflation would be a cure worse than the disease', The Guardian, 2nd July, available:

https://www.theguardian.com/business/2023/jul/02/using-austerity-economics-to-crush-uk-inflation-would-be-a-cure-worse-than-the-disease

O'Neill, Jim (2023) 'We need urgent government investment rule changes to boost the UK economy'

, The Independent, 6th August, available:

https://www.independent.co.uk/voices/uk-economy-government-jim-oneill-rachel-reeves-b2388433.html

Inman, Phillip (2023) 'UK economy 'will shrink for two years as eurozone and US grow'', The Guardian, 27th September, available:

https://www.theguardian.com/politics/2023/sep/26/uk-economy-will-shrink-for-two-years-as-eurozone-and-us-grow

Partington, Richard (2023b) 'As Britain's town hall services crumble, the case for reform is overwhelming', The Guardian, 2nd October, available:

https://www.theguardian.com/business/2023/oct/01/as-britain-town-hall-services-crumble-the-case-for-reform-is-overwhelming

Use the multiplier AD model diagram to illustrate and explain in detail what might happen if the UK

government ramped up austerity measures to (in part) combat persistent high inflation.

In your diagram, begin the UK economy in the first half of 2023, representative of a period of stagnant

economic growth and underinvestment. And in your answer, explain how the multiplier process might

pan out over the next year and a half (assume size of the multiplier is 2.0).

[350 or so words) please draw the diagram for me