Question

Q- in the response to announced British departure from the EU, Consumption fell in Britain and the uncertainty concerning Brexit has cause firms for postpone investments

a. Use the AS/AD model, analyse the short run implications of these developments for real GDP

b. Economist argued that Brexit will permanently lower the potential output in the UK. Assuming this is the case, indicate on the AS/AD model the long run equilibrium of the economy

c. The governor of Bank of England has vowed to increase the money supply in Britain in response to Brexit. Explain in words the implications of this in both short run and long run.

Answer 1

this fall of consumption will create a shortage of demand in Europian unions which will cause a fall in aggregate demand of the economy. this fall in demand will lead to unemployment and creates a recessionary gap in the economy.