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macroeconomics
MACRO2.1.1 economic growth
GDP (gross domestic product) - total value of all new goods and services produced in a given year
only measures new products and new value
year on year growth - percentage change between one year and the previous year
recession - two consecutive quarters of negative GDP growth
purchasing power parity - measure of the price of specific goods in different countries
used to compare the power of one currency against another
falls in UK GDP growth (AP)
COVID (2020)
US housing crisis + global financial crisis (2008)
discussion to create the euro (erm crash/ black wednesday)(1992)
negative GDP implies more pent on production than made in selling
volume x price = value
GDP should equal total output = total expenditure (amount spent on G+S) = total income (amount paid to produce G+S)
GDP limitations
per capita - pop growth increase GDP due to greater spending/ earning/ output but people may be poorer if rate of pop
growth > rate of econ growth
hidden economy - unpaid work (subsistence farming, housework) isnt captured
inequality - GDP increases could mean rich get richer rather than everyone
environmental degradation - GDP fails to consider if development is sustainable or damage to natural world
comparisons - different estimation techniques and purchasing power mean its hard to make international/ historical
comparisons
happiness - increase in countries per capita income doesnt lead to a direct increase in happiness
2.1.2 inflation
inflation - persistent increase in the general price level
index - a statistical measure of relative change (compared to base year)
real - adjusted for inflation
nominal (not adjusted for inflation)
nominal increase in wages could actually be a real decrease depending on wage growth rate vs inflation rate)
consumer price index (cpi)
survey and calculate price change over 720 G+S over around 140 shops
find average basket of goods (what average person consumes, found in proportion, made to be representative of
entire population)
updated annually based on consumer trends
price change x weight = contribution to CPI
disinflation - fall in the rate of inflation
deflation - fall in the general price level
macroeconomics 1
, hyperinflation - rapid, significant and uncontrollable increase in general price level e.g. weimar germany, venezuela under
maduro)
types of inflation
demand pull - excess demand signals a price increase
cost push - increase in COP causes price increase
causes of inflation
rising property prices DP (wealth effect leads to more confidence and spending)
rising global oil prices CP (increased COP passed onto consumers) (can effect all industries through price of shipping/
transport)
£ depreciating CP+DP (increased import prices and increase in cheap exports)
cut in interest rates DP (cheaper borrowing so more spending)
decrease in VAT CP (lower COP passed onto consumers)
workers expecting inflation CP+DP(demand higher wages and higher COP passed onto consumers)
problems with inflation
erodes the value of money savings and wages
uncertainty leads to lower consumer and business confidence
less internationally competitive so less exports
worsens inequality as its worse for those who spend high proportion of income on necessities
problems with deflation
sign of economic slowdown
discourages consumer spending (downward spiral)
debt value increase in real terms
HOWEVER savers are better off as previous savings spread further
limitations of cpi
not fully representative (rich vs poor, students vs pensioners)
basket of goods not updated fast enough
fails to look at tech improvements making things cheaper over time
2.1.3 unemployment
working age population -all people aged between 16-64 years old
labour force - all those able and willing to work
economically inactive - people in the working age population who are unable or unwilling to work
growing in all age groups (health ailments for nhs in older and mental health issues in younger people)
employment - the proportion of the working age population that is working
unemployment - the proportion of the working age population that is actively seeking work but not working
underemployed - employed but seeking more hours
measuring unemployment
claimant count - number of people claiming unemployment benefits
+
easy to collect
-
susceptible to political manipulation (changing standards for benefits to inflate or deflate unemployment rate
excludes people out of work who dont claim benefits
fraud could lead to overestimating unemployment
macroeconomics 2
, international labour organisation (ilo) -surveys and estimated number of people actively seeking work + available to start in
2 weeks
+
more accurate
based on international standard
-
more expensive
only need 1 hr of work a week to be employed
types of unemployment
seasonal
mismatch between demand and supply of workers (tourism, construction, farming)
frictional
unemployment between jobs avg, 10 days between hospitality, 30 days between consulting
geographical
01/2020 700k vacancies in London but 105k unemployed in scotland
structural
globalisation (welsh miners) and technology (train drivers, cd makers)
real wage
causes include high minimum wage, strong trade unions, deflation
cyclical
result of changes in worker supply and demand
on a graph
structural, geographical and structural are base unemployment
cyclical and real wage create changes over years
seasonal makes changes during quarters
impacts of unemployment
workers businesses government the economy
+forces workers to +less pressure to -increase in welfare +creative destruction
retrain/ become more increase wages spending (forces workers,
productive reduced risk of strike fall in tax revenue businesses and govt to
-loss of income action reconsider their current
increase in government plans)
psychological and social -fall in demand for G+S borrowing
cost and further back along -decreased GDP
fall in living standards supply chain (negative underutilisation of factor
multiplier) inputs
decrease in profit
hysteresis - a deep recession damages both actual and potential growth
here
unemployed workers lose opportunities which permanently lower productivity
employed workers have more bargaining power to prevent real wage falling
2.2.1 aggregate demand
AD - the total level of new demand/ expenditure/ spending in an economy
AD = C + I + G + (X-M)
shows the relationship between the price level and the level of real expenditure/ output
macroeconomics 3
macroeconomics
MACRO2.1.1 economic growth
GDP (gross domestic product) - total value of all new goods and services produced in a given year
only measures new products and new value
year on year growth - percentage change between one year and the previous year
recession - two consecutive quarters of negative GDP growth
purchasing power parity - measure of the price of specific goods in different countries
used to compare the power of one currency against another
falls in UK GDP growth (AP)
COVID (2020)
US housing crisis + global financial crisis (2008)
discussion to create the euro (erm crash/ black wednesday)(1992)
negative GDP implies more pent on production than made in selling
volume x price = value
GDP should equal total output = total expenditure (amount spent on G+S) = total income (amount paid to produce G+S)
GDP limitations
per capita - pop growth increase GDP due to greater spending/ earning/ output but people may be poorer if rate of pop
growth > rate of econ growth
hidden economy - unpaid work (subsistence farming, housework) isnt captured
inequality - GDP increases could mean rich get richer rather than everyone
environmental degradation - GDP fails to consider if development is sustainable or damage to natural world
comparisons - different estimation techniques and purchasing power mean its hard to make international/ historical
comparisons
happiness - increase in countries per capita income doesnt lead to a direct increase in happiness
2.1.2 inflation
inflation - persistent increase in the general price level
index - a statistical measure of relative change (compared to base year)
real - adjusted for inflation
nominal (not adjusted for inflation)
nominal increase in wages could actually be a real decrease depending on wage growth rate vs inflation rate)
consumer price index (cpi)
survey and calculate price change over 720 G+S over around 140 shops
find average basket of goods (what average person consumes, found in proportion, made to be representative of
entire population)
updated annually based on consumer trends
price change x weight = contribution to CPI
disinflation - fall in the rate of inflation
deflation - fall in the general price level
macroeconomics 1
, hyperinflation - rapid, significant and uncontrollable increase in general price level e.g. weimar germany, venezuela under
maduro)
types of inflation
demand pull - excess demand signals a price increase
cost push - increase in COP causes price increase
causes of inflation
rising property prices DP (wealth effect leads to more confidence and spending)
rising global oil prices CP (increased COP passed onto consumers) (can effect all industries through price of shipping/
transport)
£ depreciating CP+DP (increased import prices and increase in cheap exports)
cut in interest rates DP (cheaper borrowing so more spending)
decrease in VAT CP (lower COP passed onto consumers)
workers expecting inflation CP+DP(demand higher wages and higher COP passed onto consumers)
problems with inflation
erodes the value of money savings and wages
uncertainty leads to lower consumer and business confidence
less internationally competitive so less exports
worsens inequality as its worse for those who spend high proportion of income on necessities
problems with deflation
sign of economic slowdown
discourages consumer spending (downward spiral)
debt value increase in real terms
HOWEVER savers are better off as previous savings spread further
limitations of cpi
not fully representative (rich vs poor, students vs pensioners)
basket of goods not updated fast enough
fails to look at tech improvements making things cheaper over time
2.1.3 unemployment
working age population -all people aged between 16-64 years old
labour force - all those able and willing to work
economically inactive - people in the working age population who are unable or unwilling to work
growing in all age groups (health ailments for nhs in older and mental health issues in younger people)
employment - the proportion of the working age population that is working
unemployment - the proportion of the working age population that is actively seeking work but not working
underemployed - employed but seeking more hours
measuring unemployment
claimant count - number of people claiming unemployment benefits
+
easy to collect
-
susceptible to political manipulation (changing standards for benefits to inflate or deflate unemployment rate
excludes people out of work who dont claim benefits
fraud could lead to overestimating unemployment
macroeconomics 2
, international labour organisation (ilo) -surveys and estimated number of people actively seeking work + available to start in
2 weeks
+
more accurate
based on international standard
-
more expensive
only need 1 hr of work a week to be employed
types of unemployment
seasonal
mismatch between demand and supply of workers (tourism, construction, farming)
frictional
unemployment between jobs avg, 10 days between hospitality, 30 days between consulting
geographical
01/2020 700k vacancies in London but 105k unemployed in scotland
structural
globalisation (welsh miners) and technology (train drivers, cd makers)
real wage
causes include high minimum wage, strong trade unions, deflation
cyclical
result of changes in worker supply and demand
on a graph
structural, geographical and structural are base unemployment
cyclical and real wage create changes over years
seasonal makes changes during quarters
impacts of unemployment
workers businesses government the economy
+forces workers to +less pressure to -increase in welfare +creative destruction
retrain/ become more increase wages spending (forces workers,
productive reduced risk of strike fall in tax revenue businesses and govt to
-loss of income action reconsider their current
increase in government plans)
psychological and social -fall in demand for G+S borrowing
cost and further back along -decreased GDP
fall in living standards supply chain (negative underutilisation of factor
multiplier) inputs
decrease in profit
hysteresis - a deep recession damages both actual and potential growth
here
unemployed workers lose opportunities which permanently lower productivity
employed workers have more bargaining power to prevent real wage falling
2.2.1 aggregate demand
AD - the total level of new demand/ expenditure/ spending in an economy
AD = C + I + G + (X-M)
shows the relationship between the price level and the level of real expenditure/ output
macroeconomics 3
