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Summary AQA economics paper 2
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this has all the notes required by AQA economics a level specification. Includes diagrams and easy explanations
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Macroeconomic objectives Low/stable inflation- 2%
Sustainable economic growth- trend rate growth of 2.5%
BOP on current account
Low unemployment
1. Protection of environment
2. Equitable distribution of income and wealth
Can be short run implications due to conflict on one another
Chancellor sets budgets to improve economy
Bank of England IR to target inflation
Measurements
Economic growth- increase in productive potential of economy
Real GDP- value of goods/services produced by economy in specific period adjusted for
inflation
Real GDP per capita- measures level of national income adjusted for inflation per person
Measured by CFOI
Inflation-continuous and persistent rise in average price level overtime
CPI(2%)- measure average price level of basket of goods/services. EU measure and allows
comparisons in EU countries.
RPI- includes housing costs like mortgages or council tax
How to measure
Price surveys to see how much goods cost in last month. 180k a month
Annual family expenditure survey- see how much a family spend on each good
Weighted price index- FEX
Current price/base year price x100 = index for new year
Times that by weight
Problems
Weighting change over time- weighting done every year but fashions change quicker
Average figure- personal rate of inflation may be higher
Sampling issues- depends on number of people
Unemployment- people who are able, available, and willing to work at current wage but cannot
find work despite actively looking
Numbers unemployed/uk workforce x100
Claimant count measure
Measured by numbers claiming JS
Number of people claiming unemployment benefits
18- retirement
Registered at job centre, actively seeking
Open to government manipulation- reduces unemployment count
Not internationally recognise- hard for comparisons
Unemployed don’t claim due to stigma
ILO- number of people aged 16-65 who’ve been out of work for 4 weeks but ready to start in 2
, Measured by phone interview/survey
Sampling issues
6 weeks out of date when published
Differences
Youth are unemployed in claimant count
JSA harder to obtain
Workers don’t get benefits but responds to ILO
Uses of national data for living standards
Allows us to see if economic growth Is occurring- allows employment opportunities
Nominal GDP can seem higher-misleading
Compare between countries
GDP per capita can be used to see output per person
No indication of distribution of wealth- dif SOL in dif countries
Hidden economies making it hard to find exact GDP
Must use PPP- purchasing power parity
Estimates how much exchange rate needs adjusting to allow equivalent rate
Minimise misleading comparisons between countries
CFOI/AD/AS
National income- measure monetary value of flow of output of goods/services produced in
an economy over period
Real national income used to measure economic performance as increase in real output
means AD risen faster than inflation, economy experiences positive growth
CFOI measurement of GDP
Shows movement of goods/services between households and firms and corresponding
payments in money terms
Shows that households are
rewarded for their FOP such
as labour getting wages
Goods and services produced
These “rewards” spent on
goods/services
Withdrawals- not all wages go towards consumer expenditure
Savings (S)
Taxation (T)
Imports- (M) spending money not in our economy
Injections- not only consumers spend money
Investment (I)- spending on capital goods
Government spending (G)
Exports (X)- foreigners in our economy
Measuring EG
1. Injections more than withdrawals = EG increases as more money entering economy
2. Injections less than withdrawals= EG decreases
3. Same= macroeconomic equilibrium
, Measuring GDP
1. Output method- final value of all goods/services in a year
2. Income method- adding all factor incomes
3. Expenditure- adding all total expenditure of goods/services in a year
4. Output=income=expenditure
Aggregate demand
Total spending on all goods/services in the economy
Consumption+investment+government spending + net exports (x-m)
Consumption 60% gov spending 25% investment 15%
AD curve downwards as price falls, consumers and firms purchase more goods and can
afford more
Consumption
Consumer expenditure on goods/services, including durable and non-durables
Saving- part of disposable income consumers don’t spend
Disposable income- net income over period of time
Interest rate- reward of saving and cost of borrowing
Determinants
Interest rate
Wealth
Consumer confidence- secure jobs more willing to spend
Changes in income tax- more disposable
Income
Availability of credit
Marginal propensity to consumer/save
How consumption/saving responds to changes in income
Change in C/s divide by change in y
Multiplier effect
Changes in components of ad lead to greater change in national output
1/ 1-mpc
Mpc depends on tax, interest (tend to save more)
Initial increase in spending increase income for another person, increasing spending further.
Higher mpc= higher accelerator as more spending on goods/services meaning higher income
for firms
Investment
Spending by firms on capital goods used to produce goods/service
Determinants
Subsidies- incentive to invest/more finance
Business confidence- secure, higher spending
Level of business profits
Consumer spending
Interest
Business profits
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