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Line 36- "international money seeking a save haven". There will be more demand for the sterling making exports more expensive and imports cheaper. Therefore it will not have an impact on inflation however it will have an impact on balance of payments because there will be a deficit. Also there will be an increase in UK unemployment as our exports become more dearer meaning there will be less competition and this will mean real incomes will fall and could reduce consumption as consumer wont be spending a lot and may tend to save instead which is a leakage in the cirucular flow of income.

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Line 23 one potential benefit to an economy if it leaves the eurozone is that it can follow/set its own monetary policy. This is because they are no longer linked to the ECB. They can now set interests rates at a lower rate than what it is currently at. A lower interest rate can increase consumption therefore increase AD. (However as EU interest rates are already very low (0.05%) this is unlikely to be realistic in current economic climate)

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25 marker Line 35: Increased exchange rate causes a slower growth of real gdp due to a fall in net exports and a rise in the demand for imports. As a result, this leads to reduced demand pull inflation. As a consequence, there will be a larget negative output gap thus leading to a rise in unemployment within the UK. As stated it in the extract line 35 "with consequences for the balance of payment", it can lead to a worsening of the current account as the volume of imports rises at a faster rate than exports. However, this would also mean that the price of imports will decrease causing an outward shift in SRAS leading to lower business costs and decreased inflation.

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Line 35-37

Answer question 25

International money will bring hot money into the uk. So pound will strengthen in value so uk imports will be cheaper which will have no impact on inflation (as uk do not have a inflation problem currently) and will decrease at uk exports.
However as UK imports more than it exports we might see a bigger current account deficit as a result. As exports become less competitive UK firms wont produce as much due to lower demand which could possibly increase unemployment levels which could lead to a decrease in real household incomes and possibly reduce consumption causing AD to decrease

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Line 37

International money might cause the pound to appreciate making UK's exports less competitive and therefore imports will become cheaper - However international money may favour other currencies outside the eurozone such as the Norwegian Krone or the Swiss Franc Furthermore, if the BoE increases interest rates, consumer spending may decrease so therefore imports will decrease. However having said this it would depend on the UKs current economic position. As the UK are recovering, and the government as following a policy of Austerity, consumer spending is heavily relied on to increase GDP. So the BoE may be reluctant to increase interests rates, despite it possibly decreasing imports and reducing the trade deficit.

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One impact on the UK of countries leaving the eurozone is that the value of the pound may appreciate. This is because investors are more likely to favour the UK pound over the euro due to the uncertainty surrounding the eurozone. This may benefit the UK as it may increase Foreign Direct Investment. However if countries restore back to their own currencies their currency may be much weaker against the pound making UK exports less competitive. This means the demand for UK exports will reduce leading to a downward shift in AD. Furthermore the UK economy is in a recovery period therefore they have to rely more on their exports in order to make the economy more sustainable in the long term. Therefore less competitive exports would hinder this recovery as it may increase deficit in the balance of payments.

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Line 30. 'Which countries these were'. If weaker countries left the eurozone e.g Greece they would take on their own currency which would mean the currency wouldn't be as strong as the euro so they will find it harder to pay back money they owed. This would impact the businesses and banks in the UK which Greece owes money to due to the currency being weak in comparison to the pound (due to economic instability).

However, given the current economic situation in Greece, it seems unlikely that they will leave the eurozone as most of their trade is done with member EU countries (many of which have the Euro). Thus it seems unrealistic that they would leave the Euro and adopt their old currency, as it is likely to reduce trade with their biggest trading partners in the EU (especially in the short run as the Greek currency is likely to be very volatile and fluctuate greatly). Therefore it is unlikely that Greece would make such a bold move, especially at a time when their economy is facing such instability.

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Line 31 suggests that a break up of the eurozone would cause significant instability in those countries. This therefore may lead to FDI being diverted from those countries to the UK as the sterling and the UK economy as a whole will seem like a more stable place to invest with less risks involved. This increased FDI will lead to an increase in AD and in our growth potential.

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Line 37:

If the eurozone were to disband, the UK may benefit from the injection of hot money into the economy.

However, the UK may not benefit because the higher demand for the pound will mean UK exports are less competitive and so UK exports will decrease. This will have a negative impact on the deficit on the current account.

However, as the leaving countries restore their old currency, this may deter foreign investors as there is likely to be instability and regular fluctuations of their currency, this may attract investors to the UK, as it is seen as a more stable economy which is currently in the recovery stage. This may increase the amount of Foreign direct investments in the UK, which will help increase the economic growth rate as the productive potential of the economy grows, this will help reduce umemployment, and could have a positive multiplier effect.

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Line 37-might favour the pound sterling and thus strengthen it's external value. This will have an impact on the UK economy because the demand for the pound will increase as it is seen as more 'safe'. This increased demand for the pound will mean the pound will be stronger than other currencies, so UKs exports will become less competitive, hence exports will decrease and this will worsen the deficit on the balance of payments. A reduction in the UK's exports will also mean a reduction injections to the UK economy. Currently, because the UK economy cannot rely on government expenditure to increase demand and growth, this may have significant effects decreasing the rate of economic growth.

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For 25 marker Line 35 "the UK might expect disruption to trade " and "with consequences for B of P " illustrates an possible impact to the UK economy. Trade won't be as easy because countries such as Greece and Spain won't have a stable economy making imports and exports between the countries and the UK harder. This disruption to trade is likely to increase the deficit on the balance of payment. An increased deficit is likely to lead to a decrease in economic growth which may cause unemployment due to firms not producing as much output and therefore not requiring many workers.

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Line 23 (10marker) - Some countries still in recession may find it hard to recover at the interest rate set by the European Central Bank but if these economy leaves the eurozone it will be able to benefit from lower interest rates as they would be in control of their own monetary policy which will help boost consumption and investment leading to increased jobs available in the economy and may result in a positive multiplier effect. However it is not certain that consumption will increase as it depends on consumer confidence and the current economic climate, as if the economy is experiencing deflation then consumer will not be willing to spend as much, even though interest rates are low, due to the belief that prices will still continue to fall.

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line 30 - used for 25 marker as evaulation as impact would have on uk would depend how many countries left the euro zone and which countries left the euro zone. ( if this was a weaker economy this may benefit the UK as a weaker economy could then set interest rates to suit the countries own economic objectives - this may benefit growth as a economy could decrease interest rates to encourage spending which benefits the UK because growth in a country if beneficial for UK exports as the country demands more.

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Line 23 - used for the 10 marker

Counties leaving can set their own interest rates to stimulate AD which would then reduce unemployment and help achieve economic growth

Line 35 - used for the 25 maker

Certain countries within the Euro zone rely heavily on importing goods from the UK. By leaving the euro zone, these countries may experience a decline in their economy and therefore reduce their imports from the UK which would worsen the deficit on the UKs balance of payments.

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Line 22 'This was at a time when the Bank of England kept the UK Bank Rate at 0.5%.' This helps to recover the recession as it stimulates AD and increases consumption as well as decreasing unemployment.

This helps with q5 - 10 marker

it depends on the confidence of consumers and businesses if the monetary stimulas will be effectivand consumption and investment will increase. Also it depends on the state of the economy because if the economy is in deflation consumers will hold back purchasing despite a low interest rates as they will expect prices to continue to fall. Currently the UK is approaching deflation especially due to the impact of low oil prices however the deflation may only be temporary.

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Line 36 - ' international money might favour the pound' which would increade demand for the pound which could lead to an apreciation of the pound. This impacts on UK exports because an appreciation in the pound would decrease the competitiveness of UK exports impacting on economic growth and also on business profits which in turn could impact on other economic objectives such as unemployment as firms have reduced profits an may need to cutback on levels of labour.

Also due to the UK being a member of the EU this leaves the UK more vulnerable to economic shocks in Europe so if countries left the Euro this may affect animal spirits in the UK of businesses which has an impact on investment which would worsen the impact of reduced exports on economic growth due to an increase in the value of the pound. However the countries could import UK financial services as this is uk biggest export , it also depends on how strong the pound is to that countries currency .

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Line 37 - 'International money, seeking a safe money, might favour the pound sterling and thus strengthen its external value'

25 Marker -

If the £ is stronger relative to other currencies, UK exports will become uncompetitive - Furthermore, imports will be cheaper, so consumers will import more. This will have a negative impact on the balance of payments as the UK will import more than UK firms export

However it depends on the other countries' exchange rate relative to the UKs exchange rate. If the £ is weaker against other currencies, we will see the opposite effect and therefore imports would dearer and exports more competitive. This would increase AD and stimulate economic growth, reducing unemployment, and so will benefit the UK instead.

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Line 25: 'not be obliged to follow such a strict policy of fiscal restraint'

Real real life example - Greece's Syriza party against eurozone's policy of fiscal restraint.

One benefit of leaving the euro zone is the country will not have to abide by strict eurozone policies for example (line11) fiscal restraint. If they leave the eurozone they will be able to adopt policies suited to their own economy e.g Greece who believe they need to eliminate austerity.

25 marker- policies such as (line11) fiscal restraints are implemented in every eurozone country. If these policies do not suit a member's ecconomy it may act as a disincentive for countries to stay in the eurozone. Recently, the potential 'grexit' from the eurozone de to the fiscal restraint policy, has seen the euro depreciate against other currencies. This may impact the UK as sterling will become strong against the euro therefore UK exports to eurozone members may fall as they will be seen as expensive due to the rise in the value of the pound, leading to a worsening of the current account deficit. However, it is debatable whether countries would leave the eurozone as they may receive vital funding needed to uphold their economy e.g Greece would have ran out of money if they rejected eurozone policies and left the eurozone