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The National and International
Aggregate demand and aggregate supply and their interaction
Aggregate Demand: The total demand for an economy's goods and services at a given price level,
over a period of time. AD = C + I + G + (X-M)
Components of Aggregate Demand:
C ­ Consumer…

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Leakages: Withdrawals of possible spending from the circular flow of income ­ savings, imports,
taxes. Injections: Additions of extra spending into the circular flow of income ­ investment, exports,
government spending.

The Multiplier Effect: The process by which any change in a component of AD results in a greater

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The expenditure method is as follows: GDP = C + I + G + (X-M). When using the output method,
double counting can occur (e.g. counting the output of raw materials and then including them again in
the value of finished products) and this distorts the result. The existence of…

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may lead to some being unemployed during off-peak times. Structural unemployment: Caused by
the decline of certain industries due to changes to the structure of the economy because of changing
market conditions. Can be serious and long term in nature. Regional unemployment e.g. decline of
heavy industry in a particular…

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employment and real GDP. However it may put downward pressure on inflation. It may also be
welcomed by firms importing products and by people travelling abroad.

The application of macroeconomic policy instruments and the
international economy
Fiscal policy: The taxation and spending decisions of a government. Referred to as a…

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between those in and out of work), reforming trade unions (may lead to an increase in employment,
labour flexibility and efficiency as wage rates will be at/closer to equilibrium), privatisation (greater
firm efficiency due to competition and freedom of choice) and deregulation (removal of
laws/regulations that restrict competition and the…




This 7 page well written document analyses the macroeconomic indicators and briefly runs through fiscal, monetary and supply side policies for impacting on them.

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