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CPI inflationCPI inflation - down to lowest level in a generation, at 1.0%.  More...

UK GDPCurrent account - Deficit reaches record high at £72.4 bn, 4.2% of GDP.

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UK GDPUK trade figures - Sterling undermines rebalancing strategy.

UK GDPUK growth - GDP up 0.7% in the third quarter of 2014.


Bank of England and Mark CarneyBank of England - downgrades unemployment threshold.

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Aggregate demand

Question 1

Assuming the economy is in an initial equilibrium at X, identify where the new equilibrium will be, if:

Fiscal policy
  1. There is an increase in the money supply through quantitative easing.

  2. There is a rise in interest rates.

  3. There is a reduction in savings.

  4. Imports rise above exports.

  5. Unemployment rises.

Question 2

  1. Why does the AD curve slope downwards?

  2. Carefully explain how a change in interest rates is transmitted to the real economy.

  3. Carefully explain how a fall in the value of Sterling is transmitted to the real economy.