This document is essential for Edexcel A-level Economics revision, offering a detailed overview of macroeconomic concepts crucial for understanding the broader economy. It covers key areas such as economic growth, inflation, unemployment, and fiscal and monetary policy. It delves into the implicati...
General useful data
1. UK real GDP 2.829 trillion USD (2019)
2. UK real GDP per capita 42,330.12 USD (2019)
3. UK inflation 1.5% in April 2021
4. UK unemployment 4.9% in February 2021 - should increase when Furlough Schemes end
5. UK employment 75.2% 2021
6. UK gini coefficient 0.35 (measure of the distribution of income across a population)
7. UK debt 85.4% of GDP (2019)
8. UK interest rates 0.1% now
Economic growth
Measures of economic performance
1. Economic growth (increase in real GDP)
2. Unemployment (low)
3. Inflation (low and stable)
4. Balance of trade (balanced)
5. Fiscal balance (government spending roughly equal to tax revenue)
6. Income inequality
7. Environment - Environment Bill of the Parliament of the United Kingdom aims to improve air and water
quality, protect wildlife, increase recycling and reduce plastic waste
Benefits of economic growth
1. Higher living standards
2. Employment rises - 75.2% in UK 2021
3. Higher government tax revenue and so increased government spending
4. Accelerator effect - more investment due to increased GDP
Disadvantages of economic growth
1. Inflation and higher IR
2. Environmental effects
3. Inequality of wealth
Sustainable economic growth = AD and LRAS increase with low, stable inflation
Actual economic growth = AD increase
Potential economic growth = LRAS increase
Why increase in GDP means there is an increase in living standards
1. Consumers have more money -> spend more on goods and services
2. Firms have more money -> better choice and goods for consumers | increased working conditions for
workers with increased technology -> workers have more money etc
, Issues using GDP used to compare living standards, ignores:
1. Income equality - the top 20% of the population earn nearly four times as much as the bottom 20%
2. Inflation
3. Costs of living
4. Unpaid work
5. Black market - 17% of GDP is informal sector work - $41.68 billion - 10%->20% of population in informal
work 2010->16
6. Environmental factors
7. Public sector
8. Healthcare and life expectancy
9. Debt levels
10. Choice of products
11. Easterlin Paradox - happiness increases with income but in long run even if income increases happiness no
longer does
GDP - measure of the size and health of a country's economy over a period of time (usually one quarter or one
year).
GNI - gross national income - is the total amount of money earned by a nation's people and businesses. It is used to
measure and track a nation's wealth from year to year. The number includes the nation's gross domestic product
(GDP) plus the income it receives from overseas sources
Recession - 2 consecutive quarters of negative GDP growth
Purchasing Power Parities (PPPs) - a measure of how many units of one country’s currency it takes to buy the
same basket of goods with a given amount of another country’s currency - equalises the purchasing power of
different countries
,Index numbers
- Base year will have a value of 100 normally
- Also the percentage change + 100 (eg 200 to 250 => 25% increase = 125 index number)
Inflation
Demand pull
Aggregate demand increases leading to inflation
Cost pull
Short run aggregate supply decreases leading to inflation
, If inflation is too high:
1. Uncertainty - reduced consumption and investment
2. Increased wage demands - wage price spiral
3. Real value of savings decreases - less consumption in future
4. Decreased competitiveness in foreign markets - exports decreases
Data
- 1.5% April 2021 - risen significantly
- January 2021 food prices increased 0.6% - cost of restaurants and hotels increased 0.9% between December
and January - 0.4% increase in transport - 1.2% decrease in clothing and footwear costs
- High inflation in 1970s caused by increased oil prices, met with ‘Volcker Shock’ with IR increasing to 20%
- Global tariffs decreased from 8.8% in 1996 to 2.3% in 2019 - decreases costs of production - downwards
pressure on deflation
Aggregate demand
C + I + G + (X-M)
Why is AD curve downwardly sloping?
1. Increased spending power. At a lower price level, consumers are likely to have higher disposable income
and therefore spend more. (Note this assumes that wages are constant and not falling with prices)
2. Increase in demand for exports. If there is a lower price level in the UK, UK goods will become
relatively more competitive, leading to higher exports. Exports are a component of AD, and therefore AD
will be higher.
3. Lower interest rates. At a lower price level, interest rates usually fall, and this causes higher aggregate
demand.
Consumption
What increases it
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