A-Level Economics | Year 12 Macroeconomics Summary

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  • what is the difference between macro and micro?
  • the diagrams for macroeconomics
    • AD = C + I + G + (X-M)
      • C: consumer confidence, interest rates, disposable incomes
      • I: interest rates, business confidence
      • G: state of the economy
      • X-M: exchange rates
    • SRAS = costs of production (wages, raw material prices, exchange rates)
    • LRAS = supply side policies
    • Keynesian LRAS curve
  • The 4 macroeconomic objectives
    • 2% inflation (rise in average price level)
    • Low unemployment
    • Economic growth: increase in real GDP
      • what are the stages of the economic cycle: boom, downturn, recession, recovery
      • what are output gaps: when actual growth rate is higher/ lower than trend growth rate
      • short run (actual) economic growth vs long run economic growth
        • actual: real GDP increases e.g. AD shifts to the right
        • long run: LRAS (productive potential) increases
      • impact of economic growth: low UE, high inflation
  • Policies to achieve the four macroeconomic objectives
    • fiscal policy: the use of G&T to shift AD and control inflation
    • GOVERNMENT EVERY APRIL
    • monetary policy: the use of interest rates to shift AD and control inflation
    • (MPC) BANK OF ENGLAND EVERY MONTH
    • expansionary fiscal policy
      • evaluation: multiplier and accelerator effect, national debt increases
    • contractionary fiscal policy
      • evaluation: inequality, lower quality of public goods and services
    • expansionary monetary policy
      • evaluation: value of the pound decreases, low confidence and difficult to borrow
    • contractionary monetary policy
      • evaluation: value of the pound increases
    • supply side policy
      • evaluation: opportunity cost and time lag