F582 Economics notes

Notes for the National and International Economy

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  • Created on: 24-05-12 18:40
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Economics is the study of how society allocates its scare or limited resources to provide for its needs
and wants
Stable economic growth
Full employment
Stable prices
Satisfactory trade balance
Redistribution of income
GDP Gross Domestic Product, the total output produced by the economy, measured in money terms
Income method measures amount people earn by looking at how much tax is paid
Output method value of what firms produce
Expenditure method measures amount people spend by VAT
Workers sell their labour in exchange for a wage
Their labour produces all of the good and services in an economy
These goods and services are the purchased
Aggregate demand The total demand in an economy at a given price - inverse relationship
AD = C + I + G + ( X - M )
Consumption is affected by
- Real disposable income - average propensity to consume (APC)
- Wealth
- Consumer confidence
- Inflation
- Interest rates
- Saving
Investment is affected by
- Above
- Corporation tax (cut in tax, more profit to invest)
- Advances in technology (better products, higher profit)
Government spending is affected by
- Economic activity (high level of unemployment)
- Political support
Net export is affected by
- Exchange rate (strong pounds, imports cheaper, exports dearer)
- Domestic price level
- Government restrictions (tariffs)
Aggregate supply The total amount produced in an economy at a given price - positive relationship
AS = wages + tax + cost of materials
Macroeconomic equilibrium AD = AS
Monetary policy The manipulation of interest rates to influence levels of aggregate demand
Interest rates the cost of borrowing money and the return on saving money

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£ > i exports d imports
increase in AD
Size of the cut
Fixed Mortgage
Other policies
Fiscal policy The use of tax and government spending to control the economy
decrease in tax
Direct Tax
Income tax
Corporation tax
Capital gains
National Insurance
Indirect Tax
Import taxes -
Excise duty
increase in GDP
Government spending - an injection by the government has a greater overall impact on GDP
Creates jobs
Creates incomes
Multiplier effect
Supply Side Policies are policies aimed at growing the…read more

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Legal ages for unemployment
Child benefits
Cut benefits
Investment in technology
Subsidies or loans
Research and development
Education and training
Small business grants
Tax break
Inflation sustained increase in the general price level. It measures the annual rate of change in the
general price level of the economy.…read more

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Lower AD, lower GDP
Less disposable income
Negative multiplier effect - low ad means fewer workers needed, cycle repeats
Living standards reduce due to lower GDP
Social costs - more crime/ suicide/ divorce/ dysfunctional families/ substance abuse
Trade…read more


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