An open economy like the UK interacts with the rest of the world through its trade and other economic linkages. This can benefit the economy by expanding possibilities for cooperation and consumption, but also creates potential vulnerability if the global economy encounters problems. This was vividly demonstrated at the time of the financial crisis of the late 2000s and the worldwide recession that followed. The question discussed here analyses the possible impact of such economic shocks.
(a) Using at least one example of each, explain how demand-side and supply-side shocks might harm a country’s economic growth. (15 marks)
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