OCR economics, global economy economic growth chapter notes

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Economics revision
We measure macroeconomic performance by looking at 4 things:
Real GDP growth ­ measure of total output, expenditure or income of an economy after taking into
account real price level
Inflation- the sustained increase in general price level
Balance of payments- records of money flow in and out of a country over a period time
Unemployment- arises when someone is out of work and actively seeking employment
UK trend
2000- 2006 there is growth in real GDP 2.7% average increase
High GRP growth compared to EU and G7 countries
UK inflation has been low, recently though increasing above target of 2%
Unemployment downward trend till 2006, low long-term unemployment and youth
Record of unemployment one of best in EU
2000-2003 deficit improved, 2003 onwards it worsened, due to deterioration of trade in
goods and services and incomes balance offset growing surplus
GDP per capita had increased, moving the UK from bottom to 3rd in economic growth in G7
Willingness to adapt and embrace globalisation
Well- managed monetary and fiscal policies
Benefits of economic growth in UK's major trading partners
Economic growth in the short run and long run
Increased real GDP = more good and services to consume
Growing economy= standard of living increases
Economic growth differs throughout the world, and vary over time for each economy ­ rapid
growth some years, slowed the next and even sometimes negative growth
Why do some countries grow more rapidly? And why does rate of economic growth
fluctuate over time
Can be explained by long run and short run economic growth using a PPC
Moving to PPC 2 shown long run or potential economic growth, maximum possible output
had increased
Short run would be movement from inside PPC 1 to A or B on PPC 1 , as long as economy's
capacity to produce can be increased in LR economic growth

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Why does short run economic growth occur?
The economies resources as being used more fully therefore we move closer to our PPC e.g.
more people join the work force or we use more machinery
Why does long run economic growth occur?
Can only occur if there is increase in quantity or quality of resources e.g.…read more

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C + I + G = domestic demand
(x-m) = net external demand
Any change in these factors changes economic growth
Changes in short run aggregate supply
As price level increases so does supply
Short run AS refers to a time period during which labour costs and factor of production costs
do not respond to changes in the macro economy
E.g.…read more

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When we grow at trend rate we do not generate any inflationary pressure, so there is
increased change of economic stability
Trend rate of growth- sustainable rate for the economy
Economic stability- There is no volatility in the level of economic growth, inflation,
unemployment, or exchange rate within an economy , promoting consumer and business
Hysteresis- after long period of negative economic growth, an economy may not return to
its previous trend rate of growth
The economy starts to grow again but at a…read more

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Fluctuations in AD depend on the decisions made by households and firms
Decisions are influenced by current circumstances and future expectations
E.g.…read more

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The multiplier and the accelerator and their interaction
multiplier effect is the process by which any change in a component of AD results in a greater
final change of real GDP ­ ones spending become someone else's income, so initial spending
causes multiplying of national income
size of multiplier depends on size of leakages e.g.…read more

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Making investment a volatile component of AD, e.g.…read more

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Keynesian economists believe
there is no mechanism that guarantees that the potential maximum will be achieved
because in practice markets fail
e.g. unemployment persists in long run due to inflexible wage rates e.g. trade
unions, immobility etc...…read more

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Increase in the quality and quantity of resources
LR economic growth all about increasing economy's capacity to produce good and
Limit to output causing scarcity is caused by having a fixed amount of land, labour,
capital and entrepreneurship
By increasing the quantity and quality of the four factors of production we generate
long run economic growth
The quantity of the labour force
How can this be achieved?
Increase in the size of the population
Birth rate> death rate,
Increases proportion of young people,
Increase…read more

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Also helps workers cope with demands of jobs e.g. numeracy or literacy or trade
Labour force needs to be flexible in terms of tasks and able to adapt to changes in
the labour market by learning new skills for other jobs
The challenge for economies is how to equip their labour force with the skills needed
for a knowledge based economy
The employees in demand now no longer work in the primary and secondary sector
but in the tertiary sector e.g.…read more



This is a 22 page summary on the macroeconomic objectives. It is well written and concise and could substiturte for a text book for revision purposes. Students should adapt it for their own purposes to enhance their learning.

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