A-level Economics Aggregate Demand and Supply Summary Notes
2 views 0 purchase
Course
Macroeconomics
Institution
OCR
In-depth summary covering the knowledge required under the OCR A level economics specification. Includes a number of analysis and evaluative points to assist students with essay-based questions.
, The Circular Flow of Income: a model of
the economy that shows the movement of goods,
services and factors of production between
households and firms:
● Household consume goods and services
and receive wages from firms
● FOPs receive factor incomes in the form of
wages, salaries, rents, interest and profits
● Firms pay wages to workers and produce
output.
● The leakages from the circular flow (where money flows of the system) are taxes from
government, household savings and spending on imports
● The injections into the circular flow (where money flows into the system) are government
expenditure, exports and investment by firms into capital stock.
● The economy will be in overall balance when the injections are equal to leakages
Measuring national income, output and expenditure: The circular flow of income also
shows the three different ways that we can measure total economic activity in the economy - by
measuring total incomes, total output produced and total expenditure.
GDP (gross domestic product): the total level of economic activity carried out in an economy during a
given period.
Output = Income = Expenditure
National Output: The total final value of output produced by firms in a year deducting the cost of
intermediate goods (goods that are consumed in the process of production such as materials and
services)
National Income: (profit, dividends, income,interest, wages, rent) this is the total income received by
all FOPs in the economy in a year.
National Expenditure: The total amount spent on goods and services by different groups that
participate in the economy. The income approach can be calculated using the following formula:
GDP = C (consumption) + G (government spending) + I (investment) + NX (net exports) - also used
for measuring AD in the economy.
Aggregate Demand: the total demand for goods and services in an economy
AD = C (consumption) + G (government spending) + I (investment) + NX (net exports)
Why is AD downwards sloping?
● Wealth effect: as P increases, purchasing power decreases, reduces marginal propensity to
consume - Fall in C (an effect by which an increase in the average price level reduces
purchasing power and therefore the quantity of real output demanded)
● Trade effect: As price level increases, the competitiveness of domestic exports decreases
reducing demand for X and increasing demand for M
● Interest Rate Effect: as price level increases, interest rates will rise which increases the cost
of borrowing and decreases I + increases savings which decreases C
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller thamarasamuel06. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.16. You're not tied to anything after your purchase.
