Simon Langton Grammar School for Boys

Canterbury, Kent.

AS Economics
Unit 3: Managing the Economy
Scheme of Work

(Edexcel Exam Board)

© 2005
UNIT 3
MANAGING THE ECONOMY
This unit provides an introduction to the key measure of economic performance and the main objectives and instruments of government policy. At the end of
this unit, students should have an understanding of the key goals of government economic policy, the basic aggregate demand / supply model and the
policies that can be used in the management of the economy
Rationale: 50 periods maximum.
Periods

Outcomes:
Topic Area: Main Students should be able to: Key Terms/Concepts Assessment Resources Additional
Items Edexcel Guidance

3 Introduction to Macro • Know the difference between • Micro economics Worksheet 1 - Anderton Units 24 and 25 Link with Unit 1 (The PPF)
Economics Micro and Macro Economics • Macro economics - An introduction to Consideration of the significance
• Understand the circular flow of • Injections positive economics. of factors of production, e.g.
The Circular Flow of income • Withdrawals Lipsey 7th Ed. 21.1 Capital Investments, innovation.
Income • Understand the relationship • Circular Flow - Information Sheet 1
between the circular flow and - Unit 3 Macroeconomics: NB – Lipsey’s discussion of
• Production Possibility
National Economic equilibrium national income Definitions by topic how an economy can consume
Curve
Equilibrium (Edexcel P23-40) beyond the PPF – WS1 Q6)
• Deficit / Surplus Worksheets and information
- Tutor2u Course
Companion pp.1-13 sheets issued together. Sourced
from Nutter Course handbook
6/8 National Income and • “Understand the limitations of GDP • GDP and GNP and the Worksheet 2 - Ander
Economic Growth as an indicator of comparative difference between ton Unit 26, 27
living standards between countries” • Market prices and - Infor
Causes of differences (Edexcel) Factor Cost mation sheet 2
of growth rates • Understand how national income is • Human Development - Also
between countries measured Index see “For an Against
• Why the government measures • Purchasing Power Booklet” (RPJ)
The desirability and national income Parity and Exchange - Tutor
costs of economic • Know the difference between real Rates 2u Course Companion
growth and nominal changes in national • Sustainable Economic pp.16-21
income Development
• Understand how to use index
numbers in national income
statistics

2
 Periods
Outcomes:
Topic Area: Main Students should be able to: Key Assessment Resources Additional
Items Terms/Concepts Edexcel Guidance

National Income and • Understand the meaning and

Economic Growth causes of Economic Growth and
(continued) the costs of Economic Growth
• Understand how to compare living
standards over time and between
countries
2/3 Introduction to • Understand how changes in the • Aggregate Demand Worksheet 3 - Link to the circular flow of income. Know
Aggregate Demand and price level affect the slopes of the • Aggregate Supply Q2d s2003 The AD / AS Model the distinction between injections and
Supply AD and AS curves • Equilibrium level for Unit 3 (pp.9- withdrawals. Know that the supply curve
• Understand how national income of national income 14 Edexcel) shows the relationship between real output
equilibrium arises on the AD/AS • Short run - and the price level.
diagram Aggregate Supply Anderton Unit 33, Know the distinction between long run and
• Understand the factors that bring • Long Run 34 short run aggregate supply curves.
about shifts in the AD and AS Aggregate Supply -
curves Information Sheet 3
-
Tutor2u Course
Companion
pp.22-26 & p38
4/5 Exam Questions: Focus • Illustrate and explain the Revision Kit issued
on importance of importance of aggregate demand to support exam
aggregate demand and and aggregate supply. preparation
supply in Exam • Analyse causes of changes in the
equilibrium level of real output,
e.g. changes in World oil prices,
financial crisis within the Global
Economy (Edexcel)

3
 Periods

Outcomes:
Topic Area: Main Students should be able to: Key Assessment Resources Additional
Items Terms/Concepts Edexcel Guidance

2 Components of • Know the definition of • Consumption Worksheet 4 - Information Understand the factors influencing the size of
Aggregate Demand (Part consumption and its • Consumption as a Q2bJ2004 sheet 4 these components, particularly income,
1: Consumption) relationship to income function of income - Anderton Unit expectations, cost and availability of credit
• Understand the difference • APC 31 and the value of assets (Edexcel)
between a non-linear and linear • MPC - Tutor2u Course
consumption function Companion
• Understand how factors other pp.27-33
than income effect
consumption
6 Components of • Understand the difference • Investment Worksheet 5 - Links to Monetary Policy committee (Role
Aggregate Demand (Part between investment and saving • Saving Q1 (iii) S2004 Anderton Unit 32 of)
2: Investment and and how they are related • Saving Function -
Saving) through loanable funds • Loanable funds Information Sheet 5 The accelerator is a useful extension of your
• Understand the determinants of • The Marginal - analysis when dealing with many exam
investment through theories Efficiency of Capital Tutor2u Course questions.
such as MEC and the Companion
• The Accelerator
accelerator pp.34-42
• Interest Elasticity of -
• Understand how investment Bank Loans
may be affected by factors Worksheet (RS)
• Discretionary
other than the accelerator and Savings
the MEC
• Contractual Savings
• Understand interest elasticity • MPS
of bank loans for investment • APS
• Understand the factors that
determine saving – especially
income

4
 Periods

Outcomes:
Topic Area: Students should be able to: Key Terms/Concepts Assessment Resources Additional
Main Items Edexcel
Guidance
Investment and • Understand the difference between discretionary and
Saving contractual savings
continued • Understand the relationship shown in the savings function
• Understand how investments and savings are important to
the economy
• Understand how changes in investment and saving affect
AD and AS
5 Government • Understand why Governments spend money in the economy • Government Worksheet 6 - The mulitp;ier theory
Spending and • Know the difference between current and capital Expenditure S203 Q1 (f) Worksheet (RS) is a useful extension
Taxation expenditure • Capital Expenditure S2002 Q2b(ii) - of your analysis
• Know the purpose of taxation • Current Expenditure J20031a Tutor2u Course when dealing with
• Understand direct and indirect taxation • Direct and Indirect Jan 2003 4b Companion Ch exam questions
• Understand why and how governments borrow Taxation 4d** 17, 18 & 22
• Understand future policy towards public spending, taxation • Proportionate,
and government borrowing Regressive and
Progressive Taxation Mulitiple choice
• The impact of EMU on UK fiscal policy questions pp72-
• Understand the meaning of each of these components of • Marginal Rate of Tax
79
aggregate demand and the factors influencing their size. • Marginal Propensity
(The income/expenditure approach of the basic Keynesian to Tax and Tax
model is NOT required.) The multiplier should also be Burden
understood using a DESCRIPTIVE approach • Government
Borrowing
• Fiscal Policy

5
 Periods
Outcomes:
Topic Area: Students should be able to:
Main Items
4 The Trade • Know what is meant by the
Cycle Trade Cycle and the
characteristics of its different
phases
• Understand how trade cycles
differ in length and depth
• Know how automatic stabilisers
mitigate the worst effects of the
trade cycle
• Know how Keynesian Demand
Management policies and the
multiplier process reduce
unemployment in a recession
• Understand the importance of
the interaction between the
multiplier and the accelerator
6 Inflation and • Understand how the rate of
the Retail Price inflation is measured by the
Index (also Retail Price Index (and CPI)
CPI) and consider its limitations
(Edexcel)
• Know the meaning of inflation
and how it can be measured
• Know how inflation can be
measured using an index
• Understand the different
measures of inflation and the
accuracy of each
• The effects of inflation on an
economy
• Understand the causes and cures
Key Terms/Concepts Assessment Resources Additional
Edexcel Guidance
• The Trade Cycle – Worksheet 8 - Anderton Unit 78, 26 NB: A downturn is not
and its different - Recent Economic Data – necessarily a recession
phases Most larger questions Tutor2u charts and webpage
require some analysis of Information Sheet 8
the multiplier and or - Sloman Ch 13 esp. P386
accelerator - Tutor2u Course Companion
Ch 10 “Macroeconomic
Multiple Choice questions Cycle” and Ch 9 “Equilbrium
pp.39-49 “The Macro Level of Real Output
Economy” - Tutor2u Course Companion
Ch 11 “Multiplier and
Accelerator Effects”
• RPI, RPIX (the S2003 1a-1d - Measures Knowledge of the
underlying rate of S2002 b(i) of inflation worksheet (RS) distinction between RPI
inflation) RPIY - Tutor2u and RPIX is required (and
• HICP / CPI Worksheet 10 Course Companion Ch 12 CPI and RPI)
• Demand Pull inflation Multiple Choice “Inflation”
• Cost Push inflation Questions P54-59 Wider issues of inflation –
effect of sterling exchange
rate on inflation S2003 Q1
(e)
6
 of inflation
• Understand inflation targets
Periods
Topic Area: Main
Items
2 The Monetary Policy
Committee
4 Unemployment
2 The Phillips Curve
(Conflicts between
objectives) – Inflation Vs
Employment
Outcomes:
Students should be able to: Key Terms/Concepts Assessment Resources Additional
Edexcel
Guidance
• Know and understand the role of • MPC Jan 2004 - BO
the MPC and know their targets • Targets 1 (c,d) E website; minutes of
• Symmetrical / Asymmetrical 2(c) MPC meetings / Target
Targets Sum 2002 2.0 Competition
B(ii)
• Know the definition and • Unemployment – ILO, CC, Worksheet 11 - And
measurement of unemployment • w.r.t. labour: cyclical; demand Multiple erton Unit 29
• The relationship between deficient; frictional; seasonal; Choice - Info
unemployment and employment search; structural; technical; Qu. pp60-65 rmation sheet 11
• Costs of unemployment to voluntary; full employment. - Tut
society, or 2u Course
• Gov’t and the Economy Companion Ch 13
• The types and causes of “Employment &
unemployment Unemployment”
• Understand alternative measures
of unemployment and consider
their limitations
• Understand that unemployment
could be due to lack of demand
OR failure on the supply side.
• Know that Phillips showed an • Money wages Worksheet 9 - Info The expectations
inverse relationship between • Unemployment rmation Sheet 9 augmented Phillips
unemployment and in money • Inflation - And curve is not required
wage rises • Line of Best Fit erton pp.589-595
• Know that money wage rises • Full Employment (link with
roughly with inflation. measurement of
Therefore the relationship is economic
usually shown as unemployment performance and
and inflation. growth)
• Line of best fit re. 1861-1957
• Understood that it “worked”
until late 1960’s
• Recent debate about the shape
7

• Understand that BROADLY the
Periods
Topic Area: Main
Items
2 The Phillips curve
(continued)
3 Supply side policies (supply
side policy education and
training, reduction in
unemployment benefits)
(Demand Side Policy –
fiscal policy, monetary
policy – use of interest rates
– and exchange rates
(Edexcel)
2 Balance of Payments
of the curve and whether the
relationship still holds true
relationship still exists (blips)
Outcomes:
Students should be able to: Key Assessment Resources Additional
Terms/Concepts Edexcel Guidance
• These blips are due to the lags and
technical change
• Understand that the curve shifted to
the right…
• Understand how Supply Side • Supply Side Policy - Monetarists / Ne classical debate and
Policies are designed to reduce • Replacement Ratio Tutor2u Course Fisher Equation A2 unit 6
unemployment and promote growth • Activity Rate Companion Ch
and competitiveness • Long Run 23 “Supply Side Understand that Supply Side Policies
• The relative merits of supply side Aggregate Supply Policies” are aimed at increasing Aggregate
and demand side policies as a means Curve - Supply through increasing competition
of realising policy objectives • Short Run Grant et al p.141 productivity and flexibility in product
• Analyse the short run and long rung Aggregate Supply and labour markets.
effects of supply side and demand Curve
side policy on the rate of inflation,
the level of unemployment, the rate
of growth and on the Balance of
Payments
• Use the AD/AS model in analysis –
Edexcel
• Understand the main components of Balance of Payments Q3 - Note that prior to 1998 the financial
the Balance of Payments with Current Account Worksheet Anderton Unit 30 account was called the capital account;
special reference to the current Capital Account 13 - the account that is now called the
account (trade in goods, trade in Financial Account S2003 Q2 (e) 15.1 Sloman p.427- capital account used to be included in
services, investment income) 9 the transfers section of the current
Edexcel - account.
Grant et al P.146
-
Tutor2u Course
8
 Companion Ch
16 “Balance of
Payments”

Revision Understand the causes, cost and effects -

of unemployment, inflation, Balance of Revision Pack
Payments disequilibrium and inequality
in income distribution

9
Edexcel Economics: Unit 3
“Managing the Economy”
Additional Reading in Anderton (3rd Ed) for Students
It is estimated that you will have approximately 2hrs per week plus homework study to
complete this unit. This particular unit is arguably the most intensive out of the entire
A Level Economics course. If you intend on getting a good pass (i.e. A-C grade) you
HAVE to complete as much reading outside of the class as possible and attempt to
answer as many book/exam questions as you can to test your knowledge and
understanding.

2hrs per week = roughly 50 hrs contact time

Please note – This is NOT the Scheme of Work (you will receive this separately). It
does not show the wide range of additional activities and exercises that you will take
part in within lessons. However, it is a simplified break down of some of the additional
reading that you should complete in your own time if you intend on getting a top
grade.

Time Allocation Topic

1 wk Indicators of Economic Performance (notes)

Gross Domestic Profit (Units 24)
Unit 24 questions

1wk Measuring National Income (notes)

Gross Domestic Product (Unit 25)
Unit 25 questions

1wk Using Index Numbers (notes)

The Retail Price Index (Units 3 & 28)
Unit 3 questions
Unit 28 questions

1wk Economic Growth (notes)

Causes of differences of growth between countries (Unit 26)
The desirability and costs of economic growth (Unit 27)
Unit 26 questions
Unit 27 questions

1wk Aggregate Demand (notes)

Components of aggregate demand (consumption, investment,
government expenditure and exports-imports) (Units 31, 32 & 33)

1wk Consumer Spending and Saving (notes)

Consumption and Saving (Unit 31)
Unit 31 questions

1wk Capital Investment (notes)

Investment (Unit 32)
Unit 32 questions
© 2005
1wk Aggregate Supply (notes)
The short-run and long-run aggregate demand curves (Unit 34)
Unit 34 questions

1wk Equilibrium Level of Real Output (notes)

The relationship between aggregate demand and the price level and
aggregate supply and the price level (Units 33 & 34)
Unit 33 questions (& 34 questions)

1wk Macroeconomic Cycle (notes)

The Business Cycle (Unit 78) limited knowledge required
Some Unit 78 questions

1wk Multiplier & Accelerator Effects (notes)

The Multiplier (Unit 33)
The Accelerator (Unit 32)
Remaining Unit 32 & 33 questions completed

1wk Inflation (notes)

The causes of inflation (Unit 89)
Unit 89 questions

1wk Employment & Unemployment (notes)

Unemployment (Unit 29)
Unit 29 questions

1wk Poverty and Inequality of Income Distribution (notes)

The redistribution of income/wealth (Unit 69)
Equality and equity (Unit 68)
Only some of the Unit 68 & 69 questions comp.

1wk International Trade (notes)

Common Markets (Unit 98) limited knowledge required
International Markets (Unit 14) limited knowledge required
Some of the relevant questions completed

1wk Balance of Payments (notes)

The Balance of Payments (Unit 30)
Unit 30 questions completed

1wk Government Macroeconomic Policy (notes)

Fiscal Policy (Unit 36)
Monetary Policy (Unit 37)
Some Unit 36 & 37 questions completed

1wk Government Macroeconomic Policy Objectives

(notes)
Monetary Policy (notes)
Monetary Policy (Unit 37)
Remaining Unit 37 questions answered

11
1wk Exchange Rates (notes)
Exchange Rate Policy (Unit 39)
Exchange Rate Systems (Unit 94)
Unit 39 & 94 questions completed

1 wk Fiscal Policy (notes)

Fiscal Policy (Unit 36)
Unit 36 questions completed

1wk Government Borrowing – The Budget Deficit

(notes)
Page 245 “Bank of England” (Unit 37)

1wk Supply Side Policies (notes)

Supply Side Policies (Unit 38)
Unit 38 questions completed

1wk Summary of Economic Data on the UK Economy (notes)

Class analysis of relevant trends

Total = 23wks
2hrs per week then = 46 hours

This does not include time for revision & exam preparation and other activities as shown
in the formal scheme of work!

12