CIE AS Level Economics notes for Unit 4 - The Macroeconomy with key words, tips and summariesfor each chapter
Two collumn notes with key words and tips on the left and notes on the right. Important information highlighted and summary included for each chapter
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Unit 4 - The macroconomy (AS
Level)
Chapter 15: National income statistics
Chapter 16: Introduction to the circular flow of income
Chapter 17: Aggregate demand and aggregate supply analysis
Aggregate demand and its components
Aggregate supply
Chapter 18: Economic growth
Chapter 19: Unemployment
Chapter 20: Price stability
Chapter 15: National income statistics
Key words and tips Notes
National income - a People earn an income from producing an output,
country's total output this income is then spent on the output
National income Thus (in theory) total output = total income = total
statistics - measures of expenditure
the total output income
National income stats are measured by the
and expenditure of an
government to assess the performance of the
economy
economy
Unit 4 - The macroconomy (AS Level) 1
, Economy is considered to be doing well if its
output is growing at a sustained and a sustainable
rate
Higher output has the potential to increase
people's living standards
If an economy is growing at a slower rate than it is
considered capable of, a government is likely to
introduce policy measures to stimulate the
economy
Gross domestic
product (GDP) - the When examining economic growth both level (the
total output produced in raw difference between numbers) and rate (the
a country percentage difference) are considered
GDP is the most widely used measure of national
income; it is used to assess what is produced,
Gross national income
earned and spent in an economy
(GNI) - GDP + net
income from abroad Gross = total, domestic = home economy, product
= output
Net property income
from abroad - receipts GNI is basically the value of income earned by
of profit, rent and interest individuals (people&firms we dont exclude) of a
earned on the ownership country, regardless of where the income was
of foreign assets minus earned
the payments of profit,
GNI also includes net property income from
rent and interest to non-
abroad and compensation of employees in itself
residents
Some tax revenue on products can be paid to
Compensation of
other countries, international organisations or for
employees - income of
subsidies to other countries
workers who are
resident in one country Usually GDP and GNI are similar in values, but
but work abroad for a they can ofc differ
short period of time GDP can be bigger than GNI due to the activities
Gross national of MNCs because they can often make very big
disposable income - contributions to the output of the countries they
GNI + net transfers of operate in
workers' income to their
Similarly, GNI can be bigger than GDP because
the country receives a net inflow of property
Unit 4 - The macroconomy (AS Level) 2
, relatives to and from income from abroad; or because a large amount of
other countries the residents of the country are working abroad
Multinatinational 3 ways to calculate GDP: output, income,
companies (MNCs) - expendoture methods
firms that operate in
All in theory should give the same total because all
more than one country
measure the circular flow of income in the
Circular flow of income economy
- a simplified view of how
Therefore value of output = income (that is
income flows around the
earned by producing the output) = expenditure
economy
(assuming all incomes are spent)
Output method - a way
Output method is also sometimes called the
of measuring measuring
production method
GDP by calculating the
total production of goods It measures output of different industries (as
and services of the expected)
country
There is a danger of double counting (counting the
value of a good that is used to produce smth else
that is again sold is part of the economy's output),
so to tackle this either by totalling the value of the
final goods and services or the vallue added at
each stage of production
Value added - the So basically value added is the difference between
difference between the the price that firms pays for some goods used in its
price at which products production and the price it sells its final product for
are sold and the price of
This idea is used in the output method calculation
goods and services used
of GDP like (example):
in their production
if a firm buys beef patties at $2 each, and uses
them to produce a burger that has a price of
$5 per output, the difference between the
prices ($3) is added to the initial price of patty
when GDP is calculated
So the $3 is the value added at each stage of
Income method - a way
of measuring GDP by production
totalling all the incomes Since value of the output is based on the costs
(wages, rent, interest, profit) involved in producing
Unit 4 - The macroconomy (AS Level) 3
, earned in producing the it GDP can be calculated from this, as income
country's output method includes only payments received in return
for providing a good or service:
so if a farmer gets paid by a secondary sector
firm for his milk, it would be included in the
GDP
transfer payments (transfer of income from
Expenditure method - a private sector to public in form of taxation (or
way of calculating GDP vice versa like subsidies)) are not included in
by totalling all the income method
spending on the
Expenditure method includes consumer
country's output
expenditure (private sector), government spending
(on goods and services not welfare etc benefits -
because later does not produce income), total
investment, changes in stocks and difference
between exports and imports
so basically all money spent in the economy
(that are supposed to become someone else's
income)
but payment transfers are also nor inclded
Market prices - prices Stocks are here because it is assumed that what is
paid by consumers, take produced is either sold or is put in stocks -
indirect taxes and therefore additions to stocks should make
subsidies into the expenditure equal other values
account
Also it is "export expenditure - import expenditure"
Basic prices - prices because export creates income in home countries,
charged by producers while import creates for others and thus doesnt
before the addition of represent home country's values
indirect taxes and the
GDP and GNI are measured in market prices
deduction of subsidies
and basic prices
Gross investment -
Market prices are basically charged to customers
total spending on capital
goods Basic prices are prices without government
National domestic intervention, and are equal to the income of factors
product (NDP) - GDP- of production for making an output
Unit 4 - The macroconomy (AS Level) 4
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