Unit 2: Macroeconomic Performance and Policy
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2.3.1 - Measures of economic performance
2.3.1.1arate of change of real Gross Domestic Product (GDP) as a measure of economic growth and
The rate of change of real Gross Domestic Product (GDP) as a measure of economic growth and living standards.
2.3.1.1bGross National Income (GNI) as an alternative measure of national income
Gross National Income (GNI) as an alternative measure of national income.
2.3.1.1cdistinction between the following measures of GDP/GNI: • real and nominal • total and
The distinction between the following measures of GDP/GNI:; real and nominal; total and per capita; value and volume.
2.3.1.1dComparison of GDP/GNI rates of growth between countries and over time
Comparison of GDP/GNI rates of growth between countries and over time.
2.3.1.1econcept of Purchasing Power Parities (PPPs) in making international comparisons of real
The concept of Purchasing Power Parities (PPPs) in making international comparisons of real GDP/GNI.
2.3.1.1fdistinction between positive economic growth rates and negative economic growth rates
The distinction between positive economic growth rates and negative economic growth rates.
2.3.1.1gconcept of 'recession' as two consecutive quarters of negative economic growth
The concept of 'recession' as two consecutive quarters of negative economic growth.
2.3.1.1hlimitations of using GDP/GNI to compare living standards between countries and over time
The limitations of using GDP/GNI to compare living standards between countries and over time.
2.3.1.1iNational happiness and wellbeing: • indicators of national happiness and wellbeing •
National happiness and wellbeing:; indicators of national happiness and wellbeing; the relationship between real incomes and subjective happiness.
2.3.1.2aconcepts of inflation, deflation and disinflation
The concepts of inflation, deflation and disinflation.
2.3.1.2bCalculating inflation using a consumer price index (CPI), including role of weighted
Calculating inflation using a consumer price index (CPI), including role of weighted basket of goods and services.
2.3.1.2cLimitations of the CPI as a measure of the rate of inflation
Limitations of the CPI as a measure of the rate of inflation.
2.3.1.2dproducer (wholesale) price index as an indicator of future trends in the rate of
The producer (wholesale) price index as an indicator of future trends in the rate of inflation.
2.3.1.2eCauses of inflation: • demand-pull • cost-push • excessive growth of money supply
Causes of inflation:; demand-pull; cost-push; excessive growth of money supply.
2.3.1.2fCauses of deflation: • falling aggregate demand (AD) • increase in aggregate supply
Causes of deflation:; falling aggregate demand (AD); increase in aggregate supply (AS); fall in the money supply.
2.3.1.2gEffects of inflation and deflation on: (continued) • Consumers • the government • firms
Effects of inflation and deflation on: (continued); Consumers; the government; firms; workers; income distribution; investment; competitiveness; the current account of the balance of payments.
2.3.1.3aunemployment is measured, using the International Labour unemployment Organization
How unemployment is measured, using the International Labour unemployment Organization (ILO) definition.
2.3.1.3bcauses of unemployment: • frictional • seasonal • structural • demand deficiency • real
The causes of unemployment:; frictional; seasonal; structural; demand deficiency; real wage inflexibility.
2.3.1.3ceffects of unemployment on: • consumers • firms • workers • public finances • resource
The effects of unemployment on:; consumers; firms; workers; public finances; resource utilisation and production possibility frontier; society.
2.3.1.3ddistinction between unemployment and underemployment
The distinction between unemployment and underemployment.
2.3.1.3esignificance of changes in rates of employment, unemployment and economic inactivity
The significance of changes in rates of employment, unemployment and economic inactivity.
2.3.1.3fsignificance of net migration for employment and unemployment
The significance of net migration for employment and unemployment.
2.3.1.4aComponents of the balance of payments, with particular payments reference to the
Components of the balance of payments, with particular payments reference to the current account.
2.3.1.4bdistinction between deficits and surpluses in the trade in goods and services balance
The distinction between deficits and surpluses in the trade in goods and services balance.
2.3.1.4cdistinction between balance of payments deficits and surpluses on the current account
The distinction between balance of payments deficits and surpluses on the current account.
2.3.2 - Aggregate demand (AD)
2.3.2.1aconcept of AD. characteristics
The concept of AD. characteristics
2.3.2.1bComponents of aggregate demand: of AD • C + I + G + (X-M) = • the AD curve
Components of aggregate demand: of AD; C + I + G + (X-M) =; the AD curve.
2.3.2.1cdistinction between a movement along, and a shift of, the AD curve
The distinction between a movement along, and a shift of, the AD curve.
2.3.2.2aInfluences on consumption: • disposable income • interest rates • consumer confidence •
Influences on consumption:; disposable income; interest rates; consumer confidence; level of welfare payments; wealth effects; availability of credit.
2.3.2.2brelationship between savings and consumption
The relationship between savings and consumption.
2.3.2.2cdefinition of the 'savings ratio'
The definition of the 'savings ratio'.
2.3.2.2dCauses and effects of changes in the savings ratio
Causes and effects of changes in the savings ratio.
2.3.2.3adistinction between gross investment and net investment
The distinction between gross investment and net investment.
2.3.2.3bInfluences on investment: • the rate of economic growth • interest rates • business
Influences on investment:; the rate of economic growth; interest rates; business confidence and expectations; availability of credit; tax on company profits.
2.3.2.3cGovernment policy to promote investment: • tax relief • subsidies • reductions on the
Government policy to promote investment:; tax relief; subsidies; reductions on the rate of corporation tax.
2.3.2.4aInfluences on government expenditure: expenditure (G) • fiscal policy • the level of
Influences on government expenditure: expenditure (G); fiscal policy; the level of economic activity; correction of market failures; political priorities.
2.3.2.5aimpact on the net trade balance of changes in: (X-M) • real income • the exchange rate
The impact on the net trade balance of changes in: (X-M); real income; the exchange rate; the state of the global economy; degree of protectionism; non-price factors.
2.3.3 - Aggregate supply (AS)
2.3.3.1aconcept of AS. characteristics
The concept of AS. characteristics
2.3.3.1bAS curve. of AS
The AS curve. of AS
2.3.3.1cdistinction between a movement along and a shift of the AS curve
The distinction between a movement along and a shift of the AS curve.
2.3.3.2aFactors influencing SRAS. Changes in: (SRAS) • costs of raw materials and energy •
Factors influencing SRAS. Changes in: (SRAS); costs of raw materials and energy; exchange rates; tax rates.
2.3.3.3aDifferent shapes of AS curve: (LRAS) • Keynesian • classical
Different shapes of AS curve: (LRAS); Keynesian; classical.
2.3.3.3bFactors influencing LRAS. Changes in: • the state of technology • productivity •
Factors influencing LRAS. Changes in:; the state of technology; productivity; education and skills; government regulations and tax; demography and net migration; competition policy.
2.3.4 - National income
2.3.4.1acircular flow of income
The circular flow of income.
2.3.4.1bdistinction between income and wealth
The distinction between income and wealth.
2.3.4.2adistinction between injections and withdrawals. withdrawals
The distinction between injections and withdrawals. withdrawals
2.3.4.2bInjections: • investment • government expenditure • exports
Injections:; investment; government expenditure; exports.
2.3.4.2cWithdrawals: • savings • taxation • imports
Withdrawals:; savings; taxation; imports.
2.3.4.2dimpact of net injections into, and net withdrawals from, the circular flow of income
The impact of net injections into, and net withdrawals from, the circular flow of income.
2.3.4.3aconcept of equilibrium level of real national output. of real output
The concept of equilibrium level of real national output. of real output
2.3.4.3bCauses of changes in equilibrium real national output, as a result of shifts in AD
Causes of changes in equilibrium real national output, as a result of shifts in AD and/or AS curves.
2.3.4.4amultiplier and multiplier process
The multiplier and multiplier process.
2.3.4.4bMarginal propensities and their effects on the multiplier: • the marginal propensity to
Marginal propensities and their effects on the multiplier:; the marginal propensity to consume (MPC); the marginal propensity to save (MPS); the marginal propensity to tax (MPT); the marginal propensity to import (MPM).
2.3.4.4cCalculations of the multiplier using the formula 1/(1-MPC) and 1/MPW, where MPW = MPS +
Calculations of the multiplier using the formula 1/(1-MPC) and 1/MPW, where MPW = MPS + MPT + MPM.
2.3.4.4dsignificance of the multiplier for shifts in AD and the level of economic activity
The significance of the multiplier for shifts in AD and the level of economic activity.
2.3.5 - Economic growth
2.3.5.1adistinction between actual and potential growth
The distinction between actual and potential growth.
2.3.5.1bActual growth caused by an increase in the components of AD
Actual growth caused by an increase in the components of AD.
2.3.5.1cimportance of international trade for export-led growth
The importance of international trade for export-led growth.
2.3.5.1dCauses of potential growth: • domestic investment and foreign direct investment (FDI) •
Causes of potential growth:; domestic investment and foreign direct investment (FDI); innovation; growth in size of labour force, including net migration; the degree of competition.
2.3.5.1eimportance of productivity for the rate of economic growth
The importance of productivity for the rate of economic growth.
2.3.5.2aPossible benefits of growth: • higher living standards • lower unemployment • increased
Possible benefits of growth:; higher living standards; lower unemployment; increased profits for firms; higher levels of investment; increased tax revenues; improved public services.
2.3.5.3aPossible costs of growth: • opportunity costs • environmental costs • balance of trade
Possible costs of growth:; opportunity costs; environmental costs; balance of trade deficits; increased inequality; inflation.
2.3.5.4adifference between actual growth rate and long-term trends in growth
The difference between actual growth rate and long-term trends in growth.
2.3.5.4bdistinction between positive and negative output gaps
The distinction between positive and negative output gaps.
2.3.5.4cCharacteristics of positive and negative output gaps
Characteristics of positive and negative output gaps.
2.3.5.4dDifficulties of measuring output gaps
Difficulties of measuring output gaps.
2.3.6 - Macroeconomic objectives and policies
2.3.6.1aEconomic growth. objectives
Economic growth. objectives
2.3.6.1bLow and stable rate of inflation
Low and stable rate of inflation.
2.3.6.1cLow unemployment
Low unemployment.
2.3.6.1dBalance of payments equilibrium on current account
Balance of payments equilibrium on current account.
2.3.6.1eBalanced government budget
Balanced government budget.
2.3.6.1fGreater income equality
Greater income equality.
2.3.6.2aInflation and unemployment, including the short-run Phillips between curve.
Inflation and unemployment, including the short-run Phillips between curve. macroeconomic
2.3.6.2bEconomic growth and protection of the environment. objectives
Economic growth and protection of the environment. objectives
2.3.6.2cInflation and equilibrium on the current account of the balance of payments
Inflation and equilibrium on the current account of the balance of payments.
2.3.6.2dEconomic growth and income equality
Economic growth and income equality.
2.3.6.3aSupply-side policies designed to increase productivity, supply-side competition and
Supply-side policies designed to increase productivity, supply-side competition and incentives. policies
2.3.6.3bFree market policies: • deregulation of product and labour markets • privatisation •
Free market policies:; deregulation of product and labour markets; privatisation; reduction in taxation; changing the levels of welfare payments; cutting the costs of bureaucracy for firms.
2.3.6.3cInterventionist policies: • investment in education, training and skills • incentives
Interventionist policies:; investment in education, training and skills; incentives to encourage investment: tax incentive or subsidies; infrastructure investment; finance for business start-ups; regional policy.
2.3.6.3dStrengths and weaknesses of different supply-side policies
Strengths and weaknesses of different supply-side policies.
2.3.6.4aDemand-side policies: demand-side • the distinction between fiscal and monetary policy
Demand-side policies: demand-side; the distinction between fiscal and monetary policy policies; the distinction between reflationary and deflationary policies.
2.3.6.4bFiscal policy instruments: • government spending and taxation
Fiscal policy instruments:; government spending and taxation.
2.3.6.4cMonetary policy instruments: • interest rates • asset purchases to increase money
Monetary policy instruments:; interest rates; asset purchases to increase money supply (quantitative easing); changes in lending criteria; reserve asset (liquidity) requirements.
2.3.6.4drole of central banks in the conduct of monetary policy: • implementation of monetary
The role of central banks in the conduct of monetary policy:; implementation of monetary policy; achieving an inflation target; as banker to the government; as banker to the banks - lender of last resort.
2.3.6.4eEvaluating demand-side policies
Evaluate the strengths and weaknesses of different demand-side policies.