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A-Level Edexcel Economics A Unit 2 Summary Notes with Diagrams

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Full, detailed summary notes on every topic in Unit 2 for Pearson Edexcel Economics A. Includes detailed summary notes and diagrams and can be used for both AS-Level and A-Level Revision

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  • September 2, 2024
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Economic Growth 2.1.1
Created @October 30, 2023 6:12 PM

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Economic Growth
Short Run: Increase in Real GDP

Long Run: Increase in Productive Capacity


GDP
GDP is a measure of the size of an economy:

Over a period of time

To compare the size of different economies

GDP - Total Value of final goods and services produced in an economy in one
financial year

Measured by three methods:

National Income (Income method)

Aggregate Demand (Expenditure method)

Aggregate Supply (Production method)



Real GDP
Real GDP - Total value of final goods and services produced in an economy in
one financial year at constant price level

Real GDP is nominal GDP adjusted for inflation

Real GDP = Nominal GDP * price level in previous year/price level in current
year




Economic Growth 2.1.1 1

, Real GDP per Capita - Real GDP/population level

RGDP per capita is a measure of average income

GNI (Gross National Income) = GDP + net income earned abroad

GNP (Gross National Product) = Value of all goods and services produced by
nationals




Limitations of GDP to measure Standard of Living:
Distribution of income

Composition of GDP (Military spending vs health and education spending)

Shadow economy (illegal/unrecorded transactions)

Non-marketed output (DIY, healthcare)

Negative externalities (pollution, congestion)

Non-financial factors (individual rights)




Economic Growth 2.1.1 2

, Inflation 2.1.2
Created @October 30, 2023 6:12 PM

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Inflation, Disinflation, and Deflation:
Inflation - Sustained increase in general price level leading to a fall in
purchasing power of money

Inflation rate - % change in the price level measured over a period of time

Deflation - Fall in the price level measured over a period of time (Negative
inflation)

Disinflation - A fall in the rate of inflation (Positive inflation)

Hyperinflation:

Out-of-control price increases in an economy

Occurs when inflation rate exceeds 50% over a month

MPC (Monetary Policy Committee) from BOE (Bank of England) are
responsible for keeping inflation low and stable. Government set target of
keeping inflation at 2%


CPI:
CPI:
Base year is selected and a family expenditure survey is carried out

Representative basket of goods and services used by average UK households
chosen

Weights attached items based on importance in peoples expenditure

Weights are multiplied by price changes

Weighted price changes totalled to calculate inflation rate



Inflation 2.1.2 1

, Rate of inflation formula = (CPI new - CPI old)/CPI old

Limitations:

Does not include all products

Requires updates regularly as spending patterns change

Represents typical household, not specific consumers

No account for quality

CPIH:
Comprehensive measure of inflation

CPI extended to include housing costs

CPI is still useful for comparison internationally, as CPIH is not available for all
countries

Differences between CPIH/CPI and RPI:
1. Population base: CPIH and CPI cover more of the population than RPI

2. Item coverage: RPI includes certain aspects of housing costs not included in
CPI or CPIH, and there are no financial services in RPI

3. Index methodology: CPIH and CPI use geometric mean while RPI uses
arithmetic mean

4. Item coding: CPI and CPIH follow standard international classification, whilst
RPI is unique




Inflation 2.1.2 2

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