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Economics revision

Chapter 4:aggregate demand and aggregate supply and their
Aggregate demand The total demand for a country's goods and
services at a given price level and in a given
Price level The average of each of the prices of all the
products produced in an economy

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Savings ratio Savings as a proportion of disposable income

Capacity utilization The extent to which firms are using their
capital goods
Corporation tax A tax on firms' profits
Retained profits Profit kept by firms to finance investment

Unit cost Average cost per unit of output
Real GDP The country's output…

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Trend growth The expected increase in potential output over

AD = C + I + G + (X - M)

Key macroeconomic policy objectives:
Stable & sustainable economic growth
Low unemployment
Low & stable inflation
A satisfactory balance of payments position
An equitable redistribution of income
An increase in…

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5) Interest rates/ lower interest rates means:
Cheaper to borrow
Less incentive to save
Less money to pay on mortgage &/ or loans therefore more discretionary

6) A change in the age structure of the population
The young and elderly spend a relatively high proportion of their disposable

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Government spending
Government expenditure by central & local government on state provided goods &
services including public & merit goods
Transfer payments are not included in G because they are not a payment to a factor
of production or any output produced.

Factors that determine the level of government spending:…

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Aggregate supply
In the long run, the aggregate-supply curve is assumed to be vertical
In the short run, the aggregate-supply curve is assumed to be upward sloping
Short run aggregate supply (SRAS) shows total planned output when prices in the
economy can change but the prices and productivity of all…

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In turn, they will spend some of the money they receive. So there is a knock
on effect, with AD rising by more than the initial amount

Output gap
Positive output gap ­ occurs when actual output is above potential output.
AD is on the vertical part of the AS…

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economic stability ­ absence of fluctuations, stable economic growth, low and stable


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Chapter 5: Government economic policy objectives and indicators
of national economic performance

Economic growth In short run, an increase in real GDP, & in the
long run, an increase in productive capacity,
that is, in the maximum output that the
economy can produce
Unemployment A situation where people are out…

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Labour force survey A measure of unemployment based on a
survey using the ILO definition of
International Labour Organisation A member organization of the United Nations
(ILO) that collects statistics on Labour market
conditions and seeks to improve working
Claimant count A measure of unemployment that includes


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