Question: 1. Assume the UK is in recession. (a) Now assume the eurozone, a major trading partner of the UK, enters a recession as well.

1. Assume the UK is in recession. (a) Now assume the eurozone, a major trading partner of the UK, enters a recession as well. Show the effect of this change (i) on real output in the UK on a AS-AD graph, (ii) on unemployment in the UK on a Phillips Curve. (b) If the UK implements an expansionary fiscal policy, what will be the effect on the aggregate demand in the 0K? What further policy measures might succeed in raising the value of the fiscal multiplier? (c ) If the European Central Bank expands its quantitative easing programme, what is its impact on the UK exports to the eurozone? Explain.

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