AS Macro Economics

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AS Macro Economics Revision Guide 

Contents

·        AD

·        AS

·        Economic Growth

·        Inflation

·        Supply side policies

·        Unemployment

·        Fiscal Policy

·        Monetary Policy

·        Exchange Rates

• Balance of Payments

• Advice on the Evaluation component of the exam
• Model Essay on Economic Growth

MACRO ECONOMIC OBJECTIVES OF THE GOVERNMENT

1.      Sustainable Economic Growth

2.      Low unemployment

3.      Control of inflation

4.      Satisfactory Balance of Payments

5.      Supporting a stable Exchange Rate

6.      Low govt borrowing

Nominal GDP             =   Measure of national income, output and expenditure

This is the monetary value of all goods and services produced in the economy

Real GDP                         =         This is National income measured in constant prices.

Real GDP                         =         Nominal GDP *100/ price index

Real GDP per Capita  =         This is the Real GDP / population

AD = C+I+G+(X-M) : AD is the Total Demand for goods and services produced

Within the economy over a period of time.

C = Consumer expenditure on goods and services.

I  = Gross Capital Investment

G = Government Spending

X  = Exports   

M = Imports

An increase in AD (shift to the right) could be caused by a variety of factors:

1.      Increased Consumption:        due to

i)                    An increase in consumers wealth

ii)                   Lower Interest Rate which make borrowing cheaper

iii)                 Higher wages

iv)                 Lower Taxes

v)                  Increased consumer confidence about the future

         Consumer Expenditure accounts for about 66% of AD and therefore is a very important component of AD

2.      Increased Investment:           due to  

i)                    Lower interest rates, this makes borrowing for investment cheaper

ii)                   Increased confidence in the economic outlook

iii)                 Improved technology

iv)                 Increased economic growth

3.      Increased Government spending

4.      Increased exports

i)                    Increased growth in other countries,

ii)                   Lower value of Sterling, this makes exports cheaper

5.      Decreased M

i)                    UK more competitive

ii)                   Lower value of Sterling

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