Economics Revision notes (F585)

Edexcel economics revision note, f585 - the global economy 

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Economics Revision
Chapter 9: Macroeconomic Performance
Real GDP growth A
me asure of
t
he t
otal
output
expendit
ure or
i
ncome of
an
economy
aft
er
adjust
ing f
or
change s
in
the
p r
ice
level
.
T he
gr
ow t
h of
real
GD P
is
the % change i
n out
p ut
duri
ng a
par
ti
cular
ti
me
peri
od, of
ten
me asured over
a
ye ar
Inflation The
su st
ained
incr
ease i
n
the
general
level
of
pri
ces,
measured i
n t
he UK
by changes
in
the cost
of
a basket
of
goods
&
servi
ces bought
by a
typi
cal
ho usehol
d (consume r
pr
ice
index or
CPI)
weighted
accordi
n g
to
the expendi
ture
o n
each
it
em i
n t
he basket
Unemployment Age ar
ises
w hen
some one i
s out
of
wo r
k and act
ivel
y seeki
ng
employme nt
.
Me asur
e d
as t
he t
otal
numb er
of
p eopl
e
unemp l
oyed or
as
a % of
the workf
orce
Balance of payments Recor
ds
money
fl
ows
int
o and
out
of
a
count
ry
over
a
per
iod
of
t
ime
Current Account I
ncludes
mo ney gl
ow s
due t
o tr
ade (t
he t
rade bal
ance ­
br
oken
dow n
to
trade
in
good s
and servi
ces)
tr
ansfer
s of
i
nter
est,
prof
it
and di
vidends
(t
h e
invest
me nt
i
ncome
balance)
and
transf
ers
of money by
G ov.
and i
nternat
ional
or
ganisat
ions
(
the
transf
ers
b al
ance)
Standard of Living A
me asure
of t
he ma t
eri
al
w el
lbeing
of a
nati
ons and
it
s
peopl
e
Shortrun economic growth The
actual
annual
% i
ncrease
in
an economy'
s output
,
someti
mes r
e f
err
ed t
o as
actual
economic
growth
Longrun economic growth The
rate
at
w hi
ch t
h e
econ omy's
potenti
al
ou t
put
cou l
d gr
o w
as
a r
esult
of
chang es
in
the economy '
s capaci
ty
to pr
od uce
goods
and
servi
ces,
some ti
me s r
eferr
ed to
as potent
ial
economic
grow t
h
Output Gap The
dif
ference
b et
w een t
he actual
and pot
enti
a l
out
put of
an
economy.
It
i
s commo n
practi
ce t
o r
e f
er
to a
sit
uati
on
w her
e
act
ual
output
is
below potent
ial
output
as a
neg at
ive
output
gap.
A posi
ti
ve output
gap occurs
w hen,
i
n the
short
term
act
ual
output
exceed s
the
e conomy's
p ot
enti
al
ou t
put
Spare capacity Exi
sts
w hen
forms i
n t
h e
econ omy are
capa bl
e of
produci
ng
more
ou t
put
than t
he y
are act
uall
y produci
ng
Trend rate of growth Thi
s r
efer
s t
o t
he
aver
ag e
sust
ainabl
e r
ate
of economic
gr
ow t
h i
n an
economy.
For
example
in
the
U K
thi
s i
s about
2.
5%.
Shortrun aggregate supply Shows t
he l
evel
of
pr
oduct
ion
for
t
he economy sat
a
given
pr
ice
level
,
assumi
ng l
abour
cost
s &
other
f
a ct
or
input
cost
s
ar
e unchanged
1

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Economic cycle Fl
uct
uati
ons i
n t
he l
evel
of
economic
acti
vi
ty
as
me asured
by
GDP.…read more

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Shortterm capital flows Fl
ow s
of
mo ney
that
occur
t
o t
ake
ad vant
age
of
dif
fer
ences
in
count
ri
es'
int
erest
r
ates
&
changes
in
exchange
rat
es
someti
me s
ref
err
e d
to
as hot
money
Public sector net cash The di
ff
erence between the
spe ndi
ng of
gene r
al
G ov.
(cent
ral
requirement (PSNCR) &
local
G ov.
)& t
he i
r
revenue.…read more

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Purchasing power of money What
a
uni
t
of
cur
rency
w i
l
l
but
i
n t
erms
of
goods
& s
e r
vic
e s
Signalling function Changes i
n demand &
supply
of
goods &
ser
vices
are
si
gnall
ed t
o pr
oducers
& consumers
thr
ough
chan ges
in
absol
ute
&
rel
ati
ve
pri
ce l
evel
s
Operational independence When a
centr
a l
bank
is
given
responsi
bil
i
ty f
or
the…read more

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Key macroeconomic policy objectives:
A st
ea dy
&
sustai
nable r
ate
o f
econ omic gr
ow t
h
L ow
unemp loyment/
Full
emp l
o yme nt
L ow
rat
e
of
inf
lat
ion/
Pri
ce
stabil
it
y
A sat
isf
actory
balance of
payme nts
posit
ion
A sat
isf
actory
bud get
posi
ti
o n (
fi
sca l
)
A n equit
able r
edist
ri
bu t
ion
of
in c
o me
E…read more

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Higher levels of capital investment
o In bot
h
ma nufactur i
ng and
serv i
ce i
ndust
ries.
o T hi
s i
s bec ause
b u si
nesses
w i
ll
not
d emand such
high
nominal
rat
e s
of r
eturn on
pote ntial
i
nvest
me n t
proj
ects
if
t
hey bel
ieve
that
i
nfl
ati
on
w i
ll
r
e ma i
n
low an d
stabl
e.…read more

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Risi
ng val
ue ofp
a pera
s set
sc
r eat
e sa n i
ncorrect
percept
iona
mo ngst
i
nvestor
st
hat
they'r
ew
e a l
thi
er
thant
h eyr eal
ly
are,
andc
and
i st
ort
spending
and
savings
habit
s.
Conti
nuedq
u an t
it
ati
vee
a singd
e grad esc
o nfi
dencei
nc
u r
rency,
si
ncei
t
becomesw
e a kero
v er
ti
me .…read more

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The
con cept
of
the
acceler
ator
­ a t
heory
of
invest
me nt
that
r
elat
es the
tot
al
l
evel
of
invest
me nt
to
the
rate
of
ch ange
of
nati
onal
income
I
nvestmen t
i
s needed f
or
1.
R eplace
the
capit
al
stock
that
i
s weari
ng out
2.…read more

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A
large
outward
shif
t
in
AD
takes
the
equil
ibr
ium l
evel
of
nat
ional
out
put
beyond
ful
l
capaci
ty
nati
onal
income cr
eati
ng a
posit
ive
output
gap.
Thi
s woul
d t
hen
put
upward
pressur
e
on wage & r
aw materi
al
cost
s.…read more

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Wa ge cots oft
en ri
se when unemp loyment
is
low & al
so when people
expect
h i
ghe r
infl
a t
ion
s o
they
bid
for
higher
pa y
in
order
to pr
otect
t
heir
real
i
ncome s .
3) Higher indirect taxes imposed by the government ­ e.g.…read more

Comments

Scott Newall

ah so helpful cheers

Andy Reardon

Great Notes

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