Evaluate question

Evaluate the important to UK macroeconomic performance of increases in income per head of the population.

The macroeconomic performance is measure by the economic growth, low inflation, low unemployment and the position of balance of payment.

Increases in income per head of the population means that the average income of the UK increased, people have a higher purchases power.They would consume more goods and services if they are income elastic.so the consumer spending would raise, AD would shift to right.This could effectively help to reduce cyclical unemployment which due to a lack of aggregate demand. If UK is working under full capacity, AS would shift to right to meet the higher demand. (A diagram could be drawn). However, if UK is working near full capacity, an increase in AD is likely to cause demand-pull inflation. (demand-pull inflation diagram) .

There may not necessary right ward shift of AD. If the interest rate is increasing as well, people might even save more into bank to gain interests which might leads to a inward shift of AD. And other than consumer spending, there are government spending, investment and net exports which are the component of AD.If the UK market is experiencing inflation, a increase in income might even increase inflation.

If increased income did boost the economy, unemployment rate would be reduced. Industries would hire people to increase production and more firms would set up in the long run, structured unemployment could be reduced.

As people are consuming more goods, they would consume more imports particularly more goods if they are income elastic. UK has sustain net trade in goods deficit, this would results the deficit even larger and leads to bigger current account deficit.However, it might encourage more active trading between trading partner and give more opportunity to UK as a open economy.