Edexcel Econs AS Unit 2 Revision notes

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  • Created on: 12-04-13 01:47
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National Economic Performance
Microeconomics and Macroeconomics
Microeconomics: The study of individual behaviours of markets in an economy.
Macroeconomics: They study of the economy as a whole.
National Economic Performance
o Tells us something about the performance of the economy
o Allows economists to compare the present with the past
o Allows economists to compare different economies
Measures of national economic performance
o Balance of payments ­ ensure that a country lives within its means where the value of what it buys
from other countries must also roughly equal what it sells (imports = exports)
o Low unemployment rate ­ ensure that its resources are fully utilised and produces at a maximising
potential level of output
o Economic growth ­ the higher the level of output, the greater the economic performance.
o Price stability ­ the rate at which prices rise (inflation rate), where high rates of price rises would
disrupt the workings of an economy.
Periods where the economy fails to grow
o Depression: A period where there is a particularly deep and long fall in output
o Recession: A period where growth in output falls or becomes negative, occurs when growth in
output is negative for 2 successive quarters.
Economic Growth
Measures the rate of change of output
Uses gross domestic product (GDP) to compare output between countries and overtime
Consumers rather consume more than less of goods and services
The higher the rate of change of output, the higher the economic growth.
Represents a waste of scarce resources ­ output of an economy could be higher if the unemployed were put
to work
Represents poor national economic performance ­ those out of work would be in poverty
The lower the unemployment of an economy, the higher the growth rate.
o More workers are needed to produce more goods and services.
Overtime, technological change allows an economy to produce more with fewer workers.
o Workers may be made redundant, fail to find new jobs and increase unemployment rate.
Fast economic growth may lead to net job creation ­ more jobs will be created than lost.
o Rate of job creation can also measure national performance of an economy
The rate of change of average prices in an economy.
o Rising prices would mean that the value of savings would fall.
o Inflation would disrupt knowledge of prices in a market ­ constant changes would cause the
consumer to be unable to keep up with the market prices.
The lower the rate of inflation, the better the national performance of an economy.
The Current Balance
Imports: A nation's spending on foreign goods and services
Exports: A nation's earning from selling goods and services to foreigners
If imports are greater than exports (spending > earning), the extra spending must be financed through
borrowing or running down savings held abroad, causing a current account deficit.
o Causes problems if foreign banks or other lenders are unwilling to loan any more money
o Unable to pay for their imports and exports

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Cut down domestic spending -> Less demand for imports -> Higher unemployment rate and
reduced economic growth
If exports are greater than imports (earning > spending), the extra earning is called current account surplus.
Government Objectives
Government attempt to manipulate the economy so as to improve its economic performance
o Balance of payments on current balance should broadly balance over time.
o Unemployment should be as low as possible.
o Economic growth should be as high as possible.…read more

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The Circular Flow of Income
Income, Output and Expenditure
National income: The value of the output, expenditure or income of an economy over a period of time.
o Open economy: An economy where there is trade with other countries.
o Closed economy: An economy where there is no foreign trade.…read more

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Net national income at market prices
o Gross national income - depreciation
Transfer Payments
Income for which there is no corresponding output (excluded from calculation of national income)
o E.g.…read more

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Proportion of national income devoted to defence must be taken into account when considering the
standard of living of the population
Consumption and investment
o It is possible to increase standards of living today by reducing investment and increasing consumption
o A fall in living standards in the future would be reflected from reduced investment
o The value of externalities is not taken into account
Income distribution
o An increased national income may not mean that individuals have seen their income increase
o Income…read more

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Economic Growth
Economic growth: Growth in the productive potential of the economy, typically measured by growth in real
GDP ­ a proxy measure as actual GP may be above/ below productive potential at a point of time
The Business Cycle
Regular fluctuations in the level of economic activity around the productive potential of the economy.…read more

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Labour ­ Increasing or decreasing the number of workers
Changes in demography ­ The number of young people entering the workforce as compared to leaving it
Increases in participation rates ­ The number of women who would work if opportunities were present
Immigration ­ The number of migrant labour employed
Increasing the size of the labour force may increase output but not necessarily the economic welfare
o Increased income may have to be split between more workers, causing minimal changes to individual
Increasing the…read more

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Economic Growth and Welfare
National income and Economic Welfare (other measures of economic welfare)
Political freedom: Civil liberties VS totalitarian regimes which rule through fear
Social and cultural environment: Presence of arts and education which exist in their own right, those used as
political propaganda or with financial incentives (advertising through television)
Freedom from fear of violence: No fears of war, arbitrary arrest, imprisonment or torture, material
possessions seem relatively more important than these
The working environment: How long and hard people have to work,…read more

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Supporters of growth are relatively well off ­ Cutting their consumption or producing
environmentally friendly alternative technologies would not be difficult for them
o Leaves the mass of people in the Third World today at their present living standards would lead to
greater inequality…read more

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The Economics of Happiness
New Perspectives in Economics
Data mining: Interrogation of data bases which are widely available or may be self-created by asking the
right questions, formulating hypotheses and drawing valid conclusions.
Combination of sociology or psychology with economic theory
o Prospect theory describes decisions between alternatives that involve risk, based on how people
actually behave rather than how they should react.
The Economics of Happiness
Investigates exactly what contributes to welfare and attempts to put values on some of these factors.…read more


Whitney Koranteng

This is brilliant thank you 

Anoult Anton

rachael be an angel n do unit 3 and 4 please ? these notes are actually amazing ! <3

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