notes on all topics of Unit 2 Economics - AQA!

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Aggregate Demand and Supply:
o Aggregate demand is the total planned spending on real output produced within the
economy. AD = C+I+G+(XM)
o Aggregate Supply ­ is the level of real national output that producers are prepared to
supply at different average price levels.
o Macroeconomic Equilibrium ­ the level of real national output at which AD = AS or at
which planned injections into the circular flow of income equal planned withdrawals
from the flow.
o Inflation ­ is a persistent or continuing rise in the average price level ­ 2.1% in the UK.
o Reflation is an increase in the level of real output following an increase in aggregate
o GDP in the UK is currently 0.7%.
Aggregate Demand:
The aggregate demand shows the total quantities of real output that economic agents
(households, firms, the government and the overseas sector) plan to purchase at different
price levels within the economy when all factors other than AD are constant.
If any other factors change then the AD curve with shift left or right depending on whether it is
an increase or decrease in AD.
Aggregate Supply:
AS curve shows the quantities that
businesses plan to produce and sell at
different price levels.
The determinants faced by firms are taxes,
cost of production, technology, productivity,
attitudes, enterprise, factor mobility,
economic incentives facing workers and
firms and the institutional structure of the
Factors changing AD:

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Changes in monetary policy ­ if interest rates decrease the cost of borrowing and
the incentive to save will also decrease and increase consumption.
o Changes in Fiscal policy ­ If income tax is changed then the amount of disposable
income will change for consumers. If the tax is lowered, the disposable income will
increase and consumption will increase.…read more

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Output gaps: The difference between actual output and the trend
growth level of output. Negative output gaps occur when actual
output is below the trend growth rate level of output. Positive gaps
occur when actual output is above trend growth rate output but the
level of output still lies above the trend line.…read more

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Unionists may only care for the insiders and not the outsiders.
o The theory suggests that unions are prepared to push for higher wages whilst
unemployment is high as the insiders do not care for those who are unemployed.
o Queuing employment: occurs when unemployed workers reject lower paid jobs in
the nonunionised sector of the economy in hope they'll receive a better paid job.…read more

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Supply side fiscal policy is used to try and shift the economy's long run aggregate supply
curve to the right, therefore shows the economy's output is increasing.
o Supply Side Policy:
Increase incentives and invest people's skills by investing in apprenticeships and
university fees.
o Increase labour and capital productivity to increase output.
o Increase the occupational and geographical mobility of labour ­ getting
companies' factories to establish in the UK (e.g.…read more

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Transfers ­ payments flowing between countries in forms such as foreign aid, grants
and gifts.
o Balance of trade goods ­ is the part of the current account measuring payments for
exports and imports of goods ­ sometimes called the balance of visible trades.
o Current account deficit ­ occurs when currency outflows in the current account
exceed currency inflows. It's also known as `imports exceeding exports.…read more

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Exchange Rate The value of one currency in terms of another.
Fixed exchange rate where the price of one currency is the same as the price of other
Floating Exchange Rate an exchange rate determined by market forces.…read more


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