Analyse the effects on the UK economy of a recession in another economy with trade ties.

A recession is when an economy experiences negative growth in terms of GDP for two or more consecutive quarters. If an economy such as that of the US, a major trading partner, were to enter a recession it could have severe impacts on the UK economy. For example, during a recession aggregate demand tends to fall, causing consumers to demand less exports from the UK. This would lead to a reduction in aggregate demand in the UK as firms sell less to the US in exports, as they demand fewer goods in general (including UK exports) and thus generate less profits. As domestic firms generate less profits this could lead to them cutting costs and the demand for labour falling. Depending on the magnitude of the recession in the US, the UK could potentially enter a recession too, similar to the global financial crisis of 2008.

LJ
Answered by Luke J. Economics tutor

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