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Economics revision

TOPIC 1
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…

Page 2

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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…

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GDP=AD= C+I+G+(X-Y)
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…

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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…

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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. japan remained in recession for a decade during the 1990's because consumers
could not be persuaded to increase expenditure and investment also declined as
business confidence reduced
Interest…

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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…

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Making investment a volatile component of AD, e.g. fall when growth of economy slows lowering
domestic demand- illustrated how the multiplier and accelerator may interact to generate periods in
which real GDP rises or slows down and becomes a decrease in real GDP


Ceilings and floors represent the minimum and…

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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...
the economy's LR equilibrium could be at any at any level of GDP…

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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
services
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…

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Also helps workers cope with demands of jobs e.g. numeracy or literacy or trade
specific
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…

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davidsalter

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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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