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Macro economics revision notes

The macro economic objectives are the main performance measurements of an economy.

Objective Government aim
Economic growth Steady positive growth
Unemployment Low and steady economic growth
Inflation 2% steady inflation
Balance of payment Steady Balance of payments
Exchange rates Steady exchange rates.


There are two ways…

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of normal family purchasing. So bread is weighted more than a house. CPI excludes housing related
costs as these fluctuate and so is preferred by government as it is more accurate. Governments can
attempt to manipulate inflation through adjusting interest rates at the bank of England.

There are two types…

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Unemployment is made worse with the longer the unemployment, the amount of unemployment ,
whether the benefit system discourages work and the type and distribution of unemployment e.g.
structural unemployment or a shortage of jobs in the south/ an abundance in the north.
Unemployment has benefits as well as costs,…

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Lower costs for producer- cheaper to place in other countries meaning they
import raw materials to convert into benefit from the growth
finished products. if exports fall then business and capital
Lower inflation- Suppliers face confidence will also fall negatively
international competition and so will cut affecting the aggregate demand…

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rate and government restrictions on free trade (limits on imports in the home market will
decrease them and in foreign markets will decrease exports)

The aggregate demand curve slopes downward like a normal demand curve as the lower the price
level the more that can be purchased contributing to real…

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Government economic policy can be split into 3 branches

Monetary- Government regulation of currency and inflation through central banks
Fiscal- Government spending policies that affect AD.
Supply side- policies looking to shift LRAS and increase the overall output.

There are 4 types of fiscal policy ;

Discretionary- Deliberate manipulation of…

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Exchange rates- Floating exchange rates cannot be manipulated as they are based on
demand and supply of the currency.
Money supply- This is measured by looking at narrow money (cash in circulation) and broad
money(including deposits). In theory increasing these can signal AD to rise. Changes to these
are usually…

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International trade makes up 25% of AD through net exports (exports - imports) Britain has an open
economy and relies on trade with other countries. Britain's trade deficit is because of better
products abroad, strong pound fewer UK raw materials and high UK inflation. There are many
advantages to trade…

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Advantages Disadvantages
Free access to common markets More competition could mean UK firms
Access to the most appropriate factors go out of business
of production Social charter ambiguous
large export market harder to sell outside Europe
protection from non European markets investment may go to only the
Increased competition leading…

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