Summary

Summary CIE AS Level Economics C4 The Macroeconomy (AS)

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Course
Unit 5 - Theory and measurement in the macroeconomy

Institution
CIE

Book
Cambridge International AS and A Level Economics Coursebook with CD-ROM

Summary notes derived from the Cambridge International AS & A Level Economics coursebook for revision and exam preparation. Some examples are provided through relevant search results and lecture notes. Disclaimer: All images were sourced via Google. Credits to original owners.

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Summarized whole book? No
Which chapters are summarized? Chapter 4: the macroeconomy (as level)
Uploaded on March 30, 2022
Number of pages 34
Written in 2021/2022
Type Summary

cie economics
cie
economics
as level
as level economics
macroeconomics
cie macroeconomics
economics summary

Book Title:Cambridge International AS and A Level Economics Coursebook with CD-ROM

Author(s):Colin Bamford, Susan Grant

Edition:Unknown
ISBN:9781107679511
Edition:1

Summary
Summary Cambridge International AS and A Level Economics Coursebook with CD-ROM, ISBN: 9781107679511 Economics
Summary
Summary Cambridge International AS and A Level Economics Coursebook with CD-ROM, ISBN: 9781107679511 Economics
Summary
Summary Cambridge International AS and A Level Economics Coursebook with CD-ROM, ISBN: 9781107679511 Economics

Study Level
A/AS Level
Examinator
CIE
Subject
Economics
Unit
Unit 5 - Theory and measurement in the macroeconomy

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CHAPTER 4 :

THE macro economy
4. 1 WHAT IS THE MACRO ECONOMY ?

the whole
1¥ →
economy as a

0 level of economic activity determined by aggregate demand (Ab)
and aggregate supply ( AS ) .

4. 2 GROSS DOMESTIC PRODUCT ( GDP)

= UNDERSTANDING GDP =

o measures total income of everyone in the economy

o measures total expenditure on economy 's output of Gbs .

<

Producer 's consumer buy Gbs
income = expenditure
profits 7

→ circular flow diagram :

-
factors of production ( labour ,
land , capital & natural
resources )

factor payments ( payments to FOP )

FIRMS HOUSEHOLDS

⇒ buy / hire Fop ( use them ⇒ own FOP ,
sell / rent to

to produce goods ) firms for income

⇒ sell G&S ⇒ buy & consume Gbs

revenue ( = GDP ) markets spending ( = Gop ,
<
for goods and
>
services Gas
Gbs
sold bought
✓ ~

firms households
labour '

n factors of land & ^
production market for capital
<
factors of
>
wages rent & Production
,
income f- GDP )
profit ( = GDP )

* omits government , financial system a foreign sector

,= DEFINITION OF GDP =

↳ market value of all final goods & services produced within

a country in a
given time .

① market value
-
value of GIs @ selling price 1 same units e. g. us b)

-

✗ market value e. g. household chores EXCLUDED

② final Gbs

-
intended for consumer usage
-
intermediate goods : components / ingredients

{
embodies
baking . . .
value of
> intermediate
goods

$10.00 $15.00
③ within a country
-
production which occurs within a country 's borders
I can be done by citizens / foreign workers )

④ given period of time
-

currently produced goods ( not in the past )
- v 3- 12 months > house I built 2018 ) bought in 2021
,

:> ✗ counted in 2021 GDP
= components OF GDP =

① consumption ( C )
-
total spending by households on Gbs

↳ housing costs

t >
landlords ( imputed rental value ONLY )
tenants
①
trent payment )
✗ purchase price / mortgage payments
② investment III
-

total spending on goods that will be used to produce other goods in
the future

↳ capital equipment ( machinery ) ,
infrastructure ,
inventories

( produced but not sold yet ]

,③ government spending (G)
-

total spending on Gbs purchased by government

↳ transfer payments e. g. unemployment insurance benefits ,

pensions

↳ public goods & merit goods
④ net exports ( NX )
-
total foreign spending on economy 's GIs [ exports ]
-

portion of C , I & G spent on G&S produced abroad [ imports ]

MX =
exports -
imports

: .
GDP calculation : GDP = C + I t G + NX

=
WHAT IS GDP USED FOR ? =

o real GDP per capita → main indicator of average person 's standard

of living
BUT ! ! does not value : childcare etc
_
,

-

quality of environment -
non -
market activity

-

leisure time -
equitable income distribution

o
large GDP allows countries to afford :
L cases where people may be
-
better schools poorer / richer than depicted

-
cleaner environment

-
quality healthcare

* Hbl positively correlated WI GDP

specific to each Gbs ( Mb )
4. 3 AGGREGATE DEMAND ( Ab )

aggregate demands > total spending on an economy 's Gas @ given
N v r - revert

price level in a given time period
price level
.

n > shows quantity of GIS that households ,

firms & governments want to buy @ each
nationwide basis ; level
price
all Gds
o
negative relationship 1 inverse ) with
A
price level : . downward sloping
AD
0
Consists of 4 components
0 >
real GDP

, =
WHY IS AD DOWNWARD SLOPING ? =

① wealth effect 1 price level
G consumption )
price level tr ; real value of money 4 .
I higher spending power )
"
wealthier spend more
"
i. consumers are =

↳ consumer spending 4 ; demand for GIS 4 .

}
$5 $20 Purchasing
⇒ power
T
4 cones 10 cones
$2 : feels richer
/ THEN , ( now , .
,

ADR
② interest rate effect ( price level & investment )

price level W ; interest rate to
less borrow
expensive to

i. spending on investment goods 4 from banks
;
G&S demanded 4

low price usually due to deflation 1 bad economy )

gov discourage money in banks
•
keeping
: .
interest rate tr

??? INVESTMENT > more worth it

③ exchange rate / international effect 1 price level & net exports )
price level to ; interest rates to ; real exchange rate

HOWEVER ,
net exports 1^1 export price 4 : . more countries

i. Ab R purchase ( exports > imports )

summary ⇒ price level tr ,
Ab tr .

= components OF AGGREGATE Demand =

C-
consumption

}
↳ consumer confidence 9 income tax tr ,
,

wealth R money supply 9 , population A
,

G government spending
-

↳ desire to stimulate economic activity I
win political support 4 curve
I -

investment shifts
right
↳ business confidence 4 , corporate tax T ,

technological advances .

NX -

net exports
↳ man , ,, , , .mn, , , .mg, , .mu, ,
incomes in foreign countries 4 .

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