(PDF) Open Economy Macroeconomics

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Running Head: OPEN ECONOMY MACROECONOMICSOpen Economy MacroeconomicsName of the StudentName of the UniversityAuthor note
OPEN ECONOMY MACROECONOMICS1Table of ContentsPart a...........................................................................................................................................2Current state of UK economy................................................................................................2Part b..........................................................................................................................................5Open economy model and effect of Brexit............................................................................5Policy Response.....................................................................................................................9Brexit and effect of specific sectors of the economy.............................................................9References................................................................................................................................11
OPEN ECONOMY MACROECONOMICS2Part aCurrent state of UK economyThe eco-political event of Britain’s exits from European Union is known as Brexit. Inorder to decide about UK’s future in EU a referendum was issued on 23rdJune, 2016. 51.9%votes were obtained in favor of UK’s leaving proposal from UK (bbc.com 2018). This singleevent has an economy wide impact on Britain.The growth performance of UK since the Brexit referendum can be seen in twosegment. A relatively strong performance of the economy was recorded at the end of 2016.The performance however has slowed down in 2017 (Cameron 2017). The currentmacroeconomic state of UK can be analyzed viewing five key indicatorsOverall performance of the economySaving ratio of the householdThe standard of livingJob growthValue of PoundOverall performance of UK economyFigure 1: Comparison of GDP growth between UK and rest of G7(Source: ft.com 2018)
OPEN ECONOMY MACROECONOMICS3The growth rate of UK though improved in second quarter of 2017 to 0.3% but it islower than UK’s average growth rate of 0.5% since 2010 (ft.com 2018). The figure aboveshows that a comparatively low growth rate has kept UK at a bottom line when comparedwith other G7 nations. It is though difficult to say that Brexit has damaged growthperformance of UK as there is possibility of growth reversal once the squeeze on averageincome passes. However, a below expected growth rate for two consecutive quarter hasdimmed out such positive outlook.Saving ratio of the householdFigure 2: Saving ratio of household(Source: ft.com 2018)The proportion of income saved by household has reached to a recorded low level inthe first quarter of 2017. This indicates that people are saving less and are relying onborrowed fund to satisfy their consumption need.
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