Answer to Question #86721 in Macroeconomics for Dayna

Question

Use the IS/LM/PC and Solow models to speculate on the potential short, medium and long
terms impacts of Brexit on the UK economy? Briefly comment on why this analysis should
matter for Ireland.

Answer 1

Some forecasters have predicted that Brexit will lead to a slowing of the United Kingdom’s GDP growth during the next few years, although early forecasts of a dramatic fall in 2016 or 2017 output have been scaled back. This shock could exacerbate existing weakness in demand, a phenomenon that is common across many Western economies.

The potential economic impact of Brexit in the medium term (until 2030) will vary significantly, depending on the terms of the exit. Joining the European Economic Area (the Norwegian model) is widely believed to be the least costly, while a Free Trade Agreement (the Canadian or Swiss model) is seen as better than reverting to World Trade Organization rules (the China model). In brief, the more difficult it is for UK companies to gain access to the single market, the greater the medium-term economic hit will be to the United Kingdom.

Source:

https://www.mckinsey.com/featured-insights/europe/productivity-the-route-to-brexit-success