Macroeconomics

1. Stable economic growth

2. Full Employment

3. Stable Prices

4. Satisfactory Trade Balance

5. Redistribution of income

Taxation (T)

Saving (S)

Imports (M)

Exports (x)

Investment (I)

Government Spending (G)

Gross Domestic Product

GDP means the total output produced by the economy, measured in money terms.

1. Income Method

2. Output Method

3. Expenditure Method

The income method measures everyones incomes and estimates total earnings by the amount of tax paid.

The output method is the measure of the value of what firms produce

The expenditure method is the total amount that people spend measured by VAT

1. More Tax Revenue

2. Employment

3. Afford luxuries

3. Fewer people in poverty

GDP adjusted for price changes

E.g inflation

Purchasing Power Parity

GDP per capita is the average GDP per person, measured in money terms

It's a way of measuring living standards.

• Health (Infant Mortality Rates)
• Education (Adult Literacy Rates)

Aggregate Demand is the total demand in an economy at a given price level.

The AD function = C + I + G + (X-M)

Consumption is the act of purchasing goods and services from your own country

1. The price of items needed for production is reduced = more goods made = more exports.

2. Increase in demand from other countries (due to natural disasters)

Aggregate supply means the total amount produced at a given price

1. Wages (cost of labour)

2. Tax

3. Cost of materials

The manipulation of interest rates to influence levels of aggregate demand (to achieve our macroeconomic objectives).

The Base Rate of Interest (r) is set by the Bank of England.

Monetary Policy Committe meet monthly to decide on the rate

This feeds through to the commercial banks.

The interest rate is the cost of borrowing money and the return on saving money

The manipulation of interest rates to influence levels of aggregate demand (to achieve our macroeconomic objectives).

An decrease in interest rates would....

Increase what?

The Base Rate of Interest (r) is set by the Bank of England.

Monetary Policy Committe meet monthly to decide on the rate

This feeds through to the commercial banks.

LOANS - increase in C 

INVESTMENT

IN DEMAND HOUSES - increase in house prices - positive wealth effect

USE OF CREDIT CARDS - increase in C

which then...

INCREASES AD

The interest rate is the cost of borrowing money and the return on saving money

An decrease in interest rate...

would decrease what?

An decrease in interest rates would....

Increase what?

SAVINGS - increase in C 

MORTGAGE PAYMENTS - increase in disposable Y (income) - increase in C 

which then...

INCREASES AD

LOANS - increase in C 

INVESTMENT

IN DEMAND HOUSES - increase in house prices - positive wealth effect

USE OF CREDIT CARDS - increase in C

which then...

INCREASES AD

A increase in interest rate would...

Increase what?

An decrease in interest rate...

would decrease what?

SAVINGS - decrease in C

MORTGAGE PAYMENTS - less disposable Y (income) - decrease in C

which would...

DECREASE AD

SAVINGS - increase in C 

MORTGAGE PAYMENTS - increase in disposable Y (income) - increase in C 

which then...

INCREASES AD

A increase in interest rates ..

would decrease what?

A increase in interest rate would...

Increase what?

LOANS - decrease in C

INVESTMENT

IN DEMAND HOUSES - decrease in house prices - negative wealth effect - decrease in C

USE OF CREDIT CARDS - decrease in C

this would ...

DECREASE AD

SAVINGS - decrease in C

MORTGAGE PAYMENTS - less disposable Y (income) - decrease in C

which would...

DECREASE AD

A increase in interest rates ..

would decrease what?

LOANS - decrease in C

INVESTMENT

IN DEMAND HOUSES - decrease in house prices - negative wealth effect - decrease in C

USE OF CREDIT CARDS - decrease in C

this would ...

DECREASE AD