USE GRAPH, IF APPLICABLE, AS MUCH AS YOU CAN.

QUESTION 2:

With the onset of the Covid-19 pandemic, the UK economy went into its first lockdown at the end of March 2020. This led to a massive reduction in economic activity and a drop in business confidence levels at the time. Inflation in the UK, at the end of March 2020, was measured at 1.5%.

1. a)Use the multiplier model to illustrate (and discuss) how these factors affected output and employment in the short-run. [4]
2. b)During the first lockdown, which sectors of the economy do you think were hardest hit in terms of economic activity and job losses? Explain your answer fully. [4]

At the beginning of January 2021, the UK economy entered its third national lockdown, which led to further reductions in economic activity. This time, however, the resultant negative effects were not as large as those experienced during the first lockdown.

c) Why do you think this further downturn in economic activity during the third lockdown was not as large as that experienced in April 2020? [4]

1. d)Using your analysis from part (a), as well as the labour market model and Phillips curve, add in the likely impacts of the third lockdown on the economy from the short-run into the medium-run. (Assume that the government does not implement any policy changes to stabilise the economy.) [8]
2. e)In an attempt to lessen the negative impacts of the pandemic, businesses have had to be resilient and adapt their business practices accordingly. Usingthe concept of 'creative destruction', explain how innovation during thepandemic is of vital importance to ensure that businesses survive. [4]