Using aggregate demand and aggregate supply analysis examine the different effects on the UK economy

a) Decisions by firms based in the UK to relocate abroad Aggregate demand is defined as the total amount of demand/expenditures in the economy at any given price level. It is measured as AD = C + I + G + (X - M) The letters abbreviate the four major components of aggregate demand. Consumption (C ) is the spending by households on goods and services. Investment ( I ) is the spending by firms on investment goods. Government spending (G ) …

…increases the long-run aggregate supply of an economy as the supply of labourers in the market is enlarged. A diagram to illustrate this would perhaps be the Laffer curve. The Laffer curve illustrates that if you increase tax rates excessively, government revenue actually falls as people are less inclined to work. This is also because from B to C people try to evade taxes if they are excessively high, and go into the black economy.