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Economics-Unit 2 revision
1. Economic growth(GDP and business cycle)
2. HDI( advantages and disadvantages)
3. Inflation(RPI, CPI)
4. Balance payments and current account
5. Unemployment
6. Aggregate demand + Aggregate supply
7. Macroeconomic Objectives
8. Income inequality
9. Supply Side policies
10.Demand side policies
11.The budget


Economic growth
Sustainable growth:…

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Political cycle: Just before elections the government lowers taxes and increases spending.
Time lag from government policy: When governments make policies, they should look at
what the economy will be doing in 2/3 years, not in the present situation as the policy
only has a real effect after this time.…

Page 3

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GDP
Economic Growth: Growth of the output of the economy over time, measured by GDP

Gross domestic product: total value of all final goods and services produced in an economy over a
one year period



Presenting GDP data:

TOTAL GDP: measured in terms of volume or value
GDP per capita:…

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How is HDI measured?

1. Longevity: life expectancy
2. Knowledge:
a. Mean years of schooling
b. Expected years of schooling
3. Standard of living: GNI per capita (PPP US$)



Gross domestic product: total value of all final goods and services produced in an economy over a
one year period

Gross…

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Productivity
Productivity: how much output you can produce per unit of input

Minimise input+ maximise output= Maximum production+ Profit
Measured in terms of labour

Productivity= Output per period (unit) ÷Number of employees at work

Conflicts of growth with other objectives: Inflation, Income inequality, Environment,
Balance of payments

Inflation
Inflation: the…

Page 6

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Loss of international Reduces real interest rate: cost of Reduces growth of
competitiveness borrowing falls and real value of economy and increases
the debt of those with mortgages risk of deflation
falls.
Redistribution of income: Those on Firms can make more profits: Redistribution of income
fixed incomes lose out whereas…

Page 7

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Weights: Goods which are more frequently bought are assigned a higher weighting in the basket
of goods, giving a more accurate portrayal of consumer consumption patterns.



How can it be measured?

CPI: current preferred method

1. Family expenditure survey to 7000 households
2. Basket of 650 goods
3. Goods given…

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Financial account

Current account:

Trade in goods: Physical
Trade in services: untouchable
Investment income: dividend payments
Transfers: money being sent

Marginal propensity to consume: likelihood of buying goods

What can be done to reduce trade deficit?

Subsidise exports
Tax imports
Limit imports
Weaken exchange rate(increases people wanting your exports, makes…

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International labour organisation measure: labour force survey of households around the
country. It counts the number of people who:

have looked for work in the last month
Are able to start work in the next two weeks

Flows into the UK labour force Flows out of the UK labour force…

Page 10

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Supply side policies: labour market reforms etc...

What are the economic costs of unemployment?

Loss of earnings for those unemployed
Unemployed have more difficulty finding work in the future( hysteresis effect)
Increase in government borrowing and deficit as they have to pay more benefits and receive less
through income tax…

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