The UK economy grew by 0.3 percent in the second quarter of 2017 after 0.2 percent growth in the first quarter. These slow growth rates are seen as confirming the predicted effects of the country exiting the European Union. Some worry that Britain might be heading toward recession. Household saving and business investment have fallen, credit card borrowing is at record high, wages are stagnating, and consumer confidence is crashing.

a. How does a fall in business investment influence Britain’s aggregate demand, aggregate supply, unemployment, and inflation?

b. Use the AS-AD model to illustrate your answer to part (a).

c. Use the Phillips curve model to illustrate your answer to part (a).

d. What does the news clip mean by “Britain might be heading toward recession”?

e. Use the AS-AD model to illustrate your answer to part (d).

f. Use the Phillips curve model to illustrate your answer to part (d).