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Unit 2 Summary notes ­ Matthew Mavin

Measurements of economic performance

Economic growth

Two meaning of the term economic growth:
- Actual growth, increase in real incomes or GDP
- Potential growth, increase in the productive capacity in a country

Real values are adjusted to remove the effects of inflation.…

Page 2

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Unit 2 Summary notes ­ Matthew Mavin

Two surveys need to be undertaken:
- The expenditure and food survey. Collecting info from nearly 7,000 households. Self-reported diaries.
Used to calculate weighting of spending (e.g. 10% spent on food, 10% of money is for food)
- Price survey. Basket of goods.…

Page 3

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Unit 2 Summary notes ­ Matthew Mavin

Types and costs of unemployment:

Classical view: there are only unemployed people who are not able and willing to work at the going wage rate.
I.e. if people were willing to accept lower wages they would not be out of work. If people…

Page 4

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Unit 2 Summary notes ­ Matthew Mavin

Trade in goods measures the movement of tangible products across international borders.
Trade in services measures movement of intangible output.
Investment income is a measure of interest, profit and dividends that are rewarded for capital investments in
another country. E.g. If a British…

Page 5

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Unit 2 Summary notes ­ Matthew Mavin

Problems of HDI
- No indication of distribution of income (human poverty index may be more useful as it records what
people go without rather than what they have)
- life expectancy is easy to measure but gives no indication of quality of…

Page 6

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Unit 2 Summary notes ­ Matthew Mavin

Importance of multiplier is that if there is any change in spending in the economy the final impact on incomes
will be much greater than the initial impact. Greater the leakages, the smaller the multiplier. Formula is based
on how much of any…

Page 7

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Unit 2 Summary notes ­ Matthew Mavin

Aggregate supply

Aggregate supply is the amount that firms are willing to produce at various price levels. Largely influenced by
productivity, which in turn is influenced by factors such as the costs of production, the level of investment, the
availability and efficiency of…

Page 8

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Unit 2 Summary notes ­ Matthew Mavin

- Regulation changes. Many regulations in U.K economy which have been imposed to try to maintain a
disciplined economy, for example in the postal and telecommunications services. However such
industries have been increasingly deregulated over the past two decades to increase competition,

Page 9

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Unit 2 Summary notes ­ Matthew Mavin

loan is reduced further. The market then becomes a missing market, in the sense that there is no
equilibrium price credit where buyers and sellers can agree a rate of interest.
- Government instability. Where governments are incompetent or lack transparency or strong…

Page 10

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Unit 2 Summary notes ­ Matthew Mavin

· A more equal distribution of income
· Protection of the environment

Conflicts between objectives

Inflation and unemployment:
- A shortage of labour in a specific field can cause wage pressures to build up. The net effect in the
wider economy is that,…


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