Running the British Economy

In: Business and Management

Submitted By shadi06
Words 1920
Pages 8
Running the British Economy (RBE)

Evaluation Report of the RBE Real Run that took place on October 14th, 2011

Year 5
Description of the current situation at Year 5
The situation of the economy at year 5, time at which we have undertaken the task to assume the running of the British Economy is best described below:
- The economy’s potential output (Q) was at the level of £450bln with the Actual National Output (Y) reaching the level of £447bln, comprising of Consumer Expenditure (C) of £264bln, Investment Expenditure (I) of £92bln and Government expenditure (G) of £89bln. The Exports level (X) was at £126bln while the Import’s level (Z) at £125bln. Considering that the level of X increases the actual national output and the level of Z decreases it, them having a marginal difference amongst them (known as the Balance of Trade), had in this instance a minor effect on Y by £1bln.
- The Budgetary condition of the economy at year 5 involved a surplus of £3bln suggesting that the Governments inflows from Taxes [T= (TAX Rate * Y) + (VAT Rate * (C+I))] exceeded the Government’s outflows including the Government expenditure, TransU and TransW (transfers to Unemployment and Welfare respectively).
- The real Rates of Interest (Real R), i.e. measuring the price of money and determined by the demand and supply of money were at 6.4% while ForR (Foreign Interest Rates) were at 5%.
- Unemployment (U) stood at 6.5% while the natural rate of unemployment (WGR) was 6%.
- Inflation (INF) was at 4.4% with Foreign Inflation (ForINF) remaining at 4%.
- There was an overall Balance of Payment (BP) surplus which resulted in Sterling £ being appreciated.

Year 6 Year 6 Shock
- Estimation for an Inflation increase by 5%
- Expectation of Large Capital Outflow of £20bln
Actions Taken
- Decided to increase Money Supply (M) by 15% in order to reduce R of Year 5 (6.4%) to…...

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