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AS Economics Unit 2
Macroeconomics
Macroeconomics is the study of the economy as a whole. Aggregate Demand:
The total demand in the economy made up of consumption, investment, government spending, exports and imports. C + I + G + (X-M)
Aggregate Supply:
The total value of goods and services supplied in the economy.
Economic Growth
Economic Growth: the capacity of the economy to produce more goods and services over time. GDP: most common measure of economic growth; total value of goods and services produced in the economy. Measured as a percentage. Displayed on Business Cycle/Economic Cycle
UK GDP
Economic Boom
Downturn
Recovery
Recession
Output Gaps
Negative Output Gap: where the economy is producing less than its trend output.
Positive Output Gap: when actual GDP exceeds trend GDP increasing inflationary pressure.
GDP
Trend Growth
Actual Growth
Time
Actual Growth A
Time
AD begins to rise
AD begins to fall Consumer confidence is high and firms benefit from high profits from high demand. Firms are suffering from a contraction in AD and making redundancies.
I J K L M
Aggregate demand is exceeding aggregate supply, resulting in higher prices and inflationary pressure.
Consumer confidence is low, and instead of spending, consumers are saving, resulting in a contraction of AD.
Unemployment
http://www.bbc.co.uk/news/business-16608394
Plenary
The Office for National Statistics (ONS) said the unemployment rate also rose to 8.4% from 8.3%, the highest since January 1996. What would you do as a policy maker to address this problem?