Edexcel A-level Economics Paper 2 Revision Questions and Answers

Macroeconomics The study of the economy as a whole, including inflation, growth and unemployment. Aggregate demand The total of all demands or expenditures in the economy at any given price. Aggregate demand curve Shows the relationship between the price level and equilibrium national income. As the price level rises the equilibrium level of national income falls. Animal spirits Business confidence: the mood of managers and owners of firms about the future of their industry and the wider economy. Gross investment The addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital. Investment The addition to the capital stock of the economy. Retained profit Profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation. Net exports or the net trade balance Exports minus imports. Aggregate supply curve The relationship between the average level of prices in the economy and the level of total output. Full capacity The level of output where no extra production can take place in the long run with existing resources. The full capacity level of output for an economy is shown by the classical long run aggregate supply curve or the vertical part of a Keynesian aggregate supply curve. Short-run aggregate supply curve The upward sloping aggregate supply curve which assumes that money wage rates are fixed. Supply-side shocks Factors such as changes in wage rates or commodity prices which cause the short run aggregate supply curve to shift.