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9. The macroeconomy

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  1. 9.1 The circular flow of income

    1. 9.1.1Multiplier process

      • The multiplier process: - definition of the multiplier - formulae for and calculation of multiplier in a closed and open economy, with and without a government sector - calculation of: - average and marginal propensities to save (aps and mps) - average and marginal propensities to consume (apc and mpc) - average and marginal propensities to import (apm and mpm) - average and marginal rates of tax (art and mrt) - national income determination using AD and income approach with the multiplier process - calculation of effect of changing AD on national income using the multiplier

    2. 9.1.2AD components and determinants

      • Components of Aggregate Demand (AD) and their determinants: - consumption function: autonomous and induced consumer expenditure - savings function: autonomous and induced savings - autonomous and induced investment; the accelerator - government spending - net exports (exports minus imports)

    3. 9.1.3National income gaps

      • Full employment level of national income and equilibrium level of national income: - inflationary and deflationary gaps

  2. 9.2 Economic growth and sustainability

    1. • Actual growth versus potential growth in national output

    2. • Positive and negative output gaps

    3. • Business (trade) cycle: - phases of the cycle - causes of the cycle - role of automatic stabilisers

    4. • Policies to promote economic growth and their effectiveness

    5. • Inclusive economic growth: - definition of inclusive economic growth - impact of economic growth on equity and equality - policies to promote inclusive growth

    6. • Sustainable economic growth: - definition of sustainable economic growth - using and conserving resources - impact of economic growth on the environment and climate change - policies to mitigate the impact of economic growth on the environment and climate change

  3. 9.3 Employment/unemployment

    1. • Definition of full employment

    2. • Equilibrium and disequilibrium unemployment (including hysteresis)

    3. • Voluntary and involuntary unemployment

    4. • Natural rate of unemployment: - definition - determinants - policy implications

    5. • Patterns and trends in (un)employment

    6. • Mobility of labour: - forms of labour mobility: geographical and occupational - factors affecting labour mobility

    7. • Policies to reduce unemployment and their effectiveness

  4. 9.4 Money and banking

    1. • Definition, functions and characteristics of money

    2. • Definition of money supply

    3. • Quantity theory of money (MV = PT)

    4. • Functions of commercial banks: - providing deposit accounts (demand deposit account, savings account) - lending money (overdrafts, loans) - holding or providing cash, securities, loans, deposits, equity - reserve ratio and capital ratio - objectives of commercial banks: liquidity, security, profitability

    5. • Causes of changes in the money supply in an open economy: - commercial banks as sources of credit creation and the bank credit multiplier - role of a central bank - government deficit financing - quantitative easing - changes in the balance of payments

    6. • Policies to reduce inflation and their effectiveness

    7. • Demand for money: liquidity preference theory

    8. • Interest rate determination: loanable funds theory and Keynesian theory