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

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.

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 .

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.

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.

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.

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.

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.

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.