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Edexcel AS Economics ­ Managing the Economy

There are four main goals of macroeconomics:

Sustained Economic Growth
Low Unemployment levels
Low Inflation
A Healthy Balance of Payments (Imports and Exports)

Economic Growth

There is a standard definition of output based on the UNs measure which is used by
countries around…

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The income method involves adding together all forms of income in the economy, such as
wages, profits, rent and interest. The output method entails valuing the economy's output of
goods and services for one year. There are problems in measuring the output of an economy
though. For example, in the…

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Changes in any of the above mean that comparisons of living standards over time or
between countries are likely to be inaccurate if they are solely based on GDP.

Transfer Payments (Double Counting) not all types of income are included in the final
calculation of national income. Some incomes are…

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a. Goods are assigned weights based on how important they are in total expenditure of
the family. One good might be 4 times more important than another, and thus have
the weight of 4 (compared to 1).
b. Multiply the weight of the good by the index number (in the…

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In the next period (year 2) ­ the index number of each commodity is simply the price of the
commodity in year 2 expressed as a percentage of its price in year 1. So we see that the
price of commodity A in year 2 is 150 per cent of…

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Known as the core rate of inflation, excludes indirect taxes and the council tax on the inflation
rate. By stripping out the effect of these taxes, the government can establish the core change
of prices within the economy. Cynics would argue that it is just another way of reducing the…

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it is subject to changes in the rules governing people eligible to claim benefits. For example,
people over 60 are not entitled to claim unemployment benefit.

The International Labour Organisation is a measure of unemployment that is drawn from
research into employment called the Labour Force Survey (LFS). This is…

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goods and services are greater than imports, there is said to be a current account surplus.
Where imports exceed exports, there is a current account deficit.

The balance of payments account is a record of all financial dealings over a period of time
between economic agents of one country and…

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The exchange rate may change. A rise in the exchange rate will tend to increase
imports and reduce exports and vice versa.
The price in national currencies of goods and services may change. E.g. a rise in
domestic inflation will cause the firm's costs to rise. As for example, the…

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is of course almost impossible to measure, but there are indications of quality in life
expectancy, access to mobile phone technology and so on. Some measures of economic
development do not grow in direct proportion to economic growth (e.g. GDP per head if infant
mortality is falling dramatically with small…


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