IGCSE Edexcel Economics Macroeconomics notes (second half of the Pearson textbook). This can be used for revision for Paper 2 of the Edexcel IGCSE Economics course. Includes diagrams and perfect answers in bullet points (perfect for long-answer questions!). Good Luck!
● increasing prices to higher levels than they would be in competitive markets
● price fixing - where a number of firms agree to fix the price of a [product to avoid
price competition
● restricting consumer choice by market sharing
● raising barriers to entry
Here are the fair trade issues covered by government legislation:
● prices
● information about products
● trading and age restrictions
● customer payment methods
● consumer rights
● promotion of products
● product quality
● product safety
Furthermore, the government might ensure that markets remain competitive by controlling
mergers and takeovers, by using certain conditions or by blocking a deal completely.
One way in which a government will intervene in the labour market is by setting a minimum
wage. This is the minimum amount per hour that most workers are legally entitled to be paid.
Here are the reasons for minimum wage:
● benefitting disadvantaged workers
● workers on low incomes can claim welfare benefits from the state
● higher wages motivate workers
● employers might ask workers to increase productivity (investing in training etc),
benefits consumers
However, in theory, setting a minimum wage could result in job losses as, on a demand and
supply chart, there is a movement leftwards of the number of workers in employment with a
rise in the minimum wage. In practice, however, there have been many studies that minimum
wages do not, in fact, reduce the level of employment, and actually, in eh long run, it is
positive for the economy and for the low-wage labour market performed much better than it
did beforehand.
Macroeconomics is the study of large economic systems such as those of a whole country or
area of the world. Microeconomics is the study of small economic systems that are part of
national or international systems. The macroeconomic objectives are
● Redistribution of income
● Reducing unemployment
● Protecting the environment
● Balance of Payments
● Economic Growth
● Controlling inflation
Economic growth is an increase in the level of output by a nation. When economies grow,
national income (the value of income, output or expenditure over a period of time) increases.
Economic growth is desirable because jobs are created, incomes rise, and business
becomes more profitable. To measure economic growth, you can use the gross domestic
product. Gross domestic product (GDP) is the market value of all final goods and services
provided in a period (usually yearly), an internationally recognized measure of national
income. However, there are some limitations of GDP:
● inflation
○ price increases could indicate a misleading growth rate
● population changes
○ if the population increases, then GDP will be offset
○ to overcome this issue, we can use GDP per capita (GDP per head)
● statistical errors
● value of home-produced goods
○ some goods and services are not reader, thus making it unreported
● the hidden economy
, ○ some paid work goes unrecorded
○ aka the black or informal economy
● living standards
○ there are other factors which could also impact living standards:
■ GDP
■ leisure time
■ how extra income is shared between the population
■ pollution
■ quality of goods and services
● external costs
This is the economic
cycle. Here are the
impacts of the
economic cycle on
growth, employment
and inflation:
● boom - the
peak of the
economic cycle
where GDP is
growing at its fastest
○ the economy is performing well
○ firms expand
○ new firms enter the market
○ demand rises
○ jobs are created
○ wages rise
○ profits rise
○ however, prices may also rise
● downturn - the period in the economic cycle where GDP grows, but more slowly
○ demand stops increasing
○ unemployment rises
○ wage increases slow down
○ firms stop expanding
○ profits fall
○ forms leave the market
○ prices rise slowly
● depression - bottom of the economic cycle where GDP starts to fall with significant
increases in unemployment
○ widespread poverty
○ demand falls
○ unemployment rises sharply
○ business confidence is low
○ bankruptcies rise
○ prices flat
● recession - a period of temporary economic decline during which trade and industrial
activity are reduced, generally identifiable by a fall in GDP in two successive quarters
, ○ the less extreme version of a depression
● recovery
○ this is when GDP begins to rise
○ business confidence increases
○ demand rises
○ unemployment falls
○ prices rise
Impacts of economic growth:
● employment rises
● standards of living rise
● poverty falls
● productive potential increases
● inflation rises (overheating - demand rises too fast, causing prices and imports to
rise, a situation which governments may try to correct by raising taxes and interest
rates - could happen)
● environmental damage (unsustainable growth - economic growth that is not possible
to sustain without causing economic problems)
Aggregate demand is the total demand in the economy, including consumption, investment,
government expenditure and exports minus imports. Deflation is the period where the level
of aggregate demand is falling. Inflation is the rate at which prices rise, a general and
continuing rise in prices. In some countries, inflation is measured using the consumer price
index, which is a measure of the general price level excluding housing costs, while the retail
price index is the measure of the general price level, including house prices and council tax.
There are two types of inflation:
● Demand-pull inflation is inflation caused by too much demand in the economy
relative to supply
○ This could be a result of:
■ rising consumer spending (encouraged by tax cuts and low-interest
rates)
■ sharp government spending increases
■ rising demand for resources by firms
■ booming demand for exports
● Cost-push inflation is inflation caused by rising business costs
○ This could be caused by:
■ rising costs of imported goods
■ wage increases
■ increases in tax
○ Firms will increase prices as a result of the rising business costs, thus
causing inflation
Monetarists - economists who believe there is a strong link between growth in the money
supply and inflation - believe that when interest rates (price paid to lenders for borrowed
money; it is the price of money) are too low then there will be inflation as people begin to
borrow money from banks and spend it, causing prices to rise as there is increased money
supply. Here are the impacts of high inflation:
● The purchasing power of money - the number of goods and services that can be
bought with a fixed sum of money - decreases
● Higher wage demands rise, causing a wages/price spiral with employers
● Prices of exports rise (so demand for exports falls)
● Unemployment falls (because aggregate demand is rising and firms need to hire
more workers)
● Menu costs - costs to firms for making repeated price changes - increase
● Shoe leather costs - costs to firms and consumers for searching for new suppliers
when inflation is high - increase
● Business and consumer confidence decrease
● Investment decreases
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