Economic Impact of Brexit

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Added on 2020-05-08

Economic Impact of Brexit

Added on 2020-05-08

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Macroeconomics 1Running Head: MACROECONOMIC THEORY Macroeconomic Theory

Macroeconomics 2ContentsIntroduction......................................................................................................................................3Economic Consequences of BREXIT for United Kingdom............................................................3Role of BREXIT on Living Standards in United Kingdom (UK)...............................................3Expected Changes in Trade Patterns in UK.................................................................................4Expected Changes in UK’s Obligations towards European Union..............................................6BREXIT Impact on UK Labour Market......................................................................................7BREXIT Impact on the Exchange Rate of Pound........................................................................8The Growth Prospects of UK Economy....................................................................................10Conclusion.....................................................................................................................................11References......................................................................................................................................12

Macroeconomics 3IntroductionIntermediate macroeconomic theory explains the interaction of different economic agents with one another and its impact over the performance of an economy as a whole. The individual behaviour of economic agents is examined to understand the economic performance systematically (Besanko and Braeutigam, 2010). In this report, the economic consequences of BREXIT in relation to the United Kingdom (UK) are studied by examining the different major economic agents. BREXIT is a terms used to indicate the withdrawal of UK from the European Union (EU). UK has decided to leave the membership of EU and it has major consequences for the economy of this country.This report includes discussion over the impact of BREXIT on the different economic aspects such as living standards, trade patterns, UK’s obligations towards EU, labour market, exchange rate of British pound and the overall growth of the economy. Through this, the opinion of Nobel prize-winning economist Paul Krugman will be analyzed in this report. Economic Consequences of BREXIT for United KingdomIn this section, the possible influence of BREXIT on the economic factors such as living standard, trade patterns, labour market, exchange rate and overall growth prospects of UK economy is explained and discussed. Role of BREXIT on Living Standards in United Kingdom (UK)According to Carbaugh (2011), living standard of people in a country is greatly shaped and influenced by the different economic factors and income level is one of them. People with low income are less able to access basic facilities for living such as quality education, healthcare and leisure, which influences standards of living. Employment level in a country greatly influences income and spending or consumption power of people in a nation. The GDP of the county

Macroeconomics 4determines the employment level, which is based on the demand conditions. Mankiw (2016) stated that low GDP in an economy is caused by low investment and it consequently causes low demand, employment and GDP levels in short run. The decision of living EU has caused economic certainty, which damaged the confidence of consumers at the greater extent. It is likely to cause decline of investment by households and firms. This would cause decrease in the level of output or GDP. Due to this, the demand of labour will diminish, which will have negative impact on the employment and consequently income level of the people. Due to low income, people will demand less, which will further depress the GDP level (Chu, 2016). It is likely to affect the ability of people to access basic facilities and consequently living of standards. Low income due to low employment will reduce the tax revenues. This would affect ability of UK government to spend on the social infrastructure development and it could also depress the living standards in UK (Rodionova, 2016). Apart from domestic demand, decline in demand from EU countries will also have negative impact on the GDP, employment level and living standards of people. In UK, 12% demand of goods and services were constituted by EU countries, which contribute in developing around 3.3 million employment opportunities. BREXIT plays significant role in declining jobs and consequently living standards of people. Butat the same time, number of jobs can increase in import competing industries due to increase in import cost and less regulations. It will cause positive impact on the job level (Begg and Mushövel, 2016). Expected Changes in Trade Patterns in UKThe trade patterns of a country majorly depend on the trade related rules and regulations. This shapes a country’s trade relations with the other. The government plays critical role in

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