At the start of its term of office in 2010, the Conservative-Liberal Democrat coalition UK government announced the biggest cuts in state spending since World War II. Savings estimated at about £83bn are to be made over four years. The plan is to cut 490,000 public sector jobs. Most Whitehall departments face budget cuts of 19% on average. The retirement age is to rise from 65 to 66 by 2020. The government argue that these policies are necessary to reduce a budget deficit that was about 10% of GDP.
Write an essay not exceeding 2500 words giving your analysis of the likely long-run effects of the above policies on the UK economy. Your essay should include the following:
• The application of the closed-economy and open-economy versions of the Classical model.
• At least two line diagrams, although equations may also be used. If you do not include diagrams in your essay, you will not receive a pass mark.
• Some use of data to back up your analysis.
