Question

1) What effect will the following have on the demand for UK-produced goods and services ceteris paribus?

a) the Chancellor of the Exchequer, George Osborne increases taxes
b) there is an increase in interest rates
c) there is an increase in interest rates in Germany
d) additional spending on the National Health Service to reduce waiting lists
e) reduced spending on Child Benefit
f) Samsung builds a new factory in Scotland

Answer 1

Solution

a. The demand for the UK produced goods and services will reduce because the disposible income of the people will reduce ,so they will buy less,as the taxes have been increased

b. If the interest rates are increased,the people give preference to save their money with the banks and fiinancial institutions instead of spending it now because the former yields interest (i.e., grows their money at an attractive rate).So,the demand to spend of the people reduces.Which means the demand for UK-Produced goods and services reduces.

c. If interest rates in Germany are increased means like in the above case the demand there will reduce due to which the inflation also comes down.It leads to appreciation in German currency as it's cosnumption demand is reduced but it's exports remain nearly the same resulting in narrowing of fiscal deficit (if any) leading to currency appreciation.

d. It leads to increase in demand because any kind of  increase in govt. spending (on infrastructure,welfare) leads to increase in the demand.

e. Reduces the demand for UK produced goods & services because people will be now left with relatively lesser money to spend than before as their child benefits are reduced

f.Increase in demand. Because building new factory leads to creation of new jobs which means the money in the economy increases which means the people spend more which means demand increases.

Hope this solution helps !! Please give a " ThumbsUp" rating for the same !!