Revision

Do Now - Where are your knowledge

gaps?
AS Economics (The Revision Plan)

Last date teaching 5th May

Return to lessons 5th June (for introductory work on A2 course)

17th April - Macroeconomics

24th April - Microeconomics
1st May - Mock Exams / Final Exam Pointers
Mindset - We do not lose marks on the short answers.

What do i mean by this?

6 x Multichoice (6 Marks)

5 x 4 Mark Questions (20 Marks)

Case Study (20 Marks)

58 % (B Garde)

A* A B C D E
75% 66% 57% 48% 40% 32%
Do Now:
Mock Exams

26th Wednesday - Macro Paper

3rd Wednesday - Micro Paper

Read through the content of the next two units..
The circular flow model demonstrates how money moves from producers to households and
back again in an endless loop.
 ● The multiplier effect occurs when an initial injection into the economy causes a bigger final increase in national
income/output (GDP).

Example

If the government increased spending by £20bn

• Marginal propensity to consume (MPC) was = 0.3

• The multiplier effect = 1/(1-0.3) = 1/0.7 = 1.42

• The final increase in real GDP will be £20bn × 1.42 = £28.57bn

The output gap is the difference between the actual level of real GDP and the maximum potential level of
real GDP. If the actual level of real GDP is less than the maximum potential level of real GDP there is a
negative output gap, meaning there is spare capacity within the economy. On the other hand, if the
actual level of real GDP is greater than the maximum potential level of real GDP then there is a positive
output gap.
Export-Led Growth

Some economies rely heavily on

international trade to achieve actual
growth. For example, China and
Germany are often used as
examples of economies that run
high current account surpluses.

For these economies, net trade

(exports – imports) is a significant
component of aggregate demand.

If exports rise for any economy,

then this will cause export-led
growth.
Potential Growth

Potential growth measures the increase in the productive capacity of an economy over a year. It directly
links with the production possibility frontier (PPF) and how much the economy's productive potential is
increasing over time.

Potential growth is shown by a shift to the right of the PPF and

the LRAS curve.

In Figure 3, the movement from C to D shows potential growth.

In this case, the productive potential of the economy has
increased because the economy has increased its maximum
output over a period of
time.

An economy's productive potential can only increase if more

factors of production become available to an economy or more
efficient methods can be used, or a combination of the two.

An increase in potential growth does not necessarily mean there has been any actual growth - why? use the PPC diagram to help explain.
Do Now: Read over the content of the final unit…
Conflict One: Inflation and unemployment Conflict Two: Economic growth and protection of the environment

● An increase in aggregate demand causes higher real GDP. In developing countries, growth in primary and secondary industries is likely
● Therefore, firms employ more workers and unemployment falls. to increase pollution and cause other environmental problems. For these
● However, as the economy gets closer to full capacity, we see an economies, the main macroeconomic objective will be to achieve high
increase in inflationary pressures. economic growth rates. This is crucial to lifting their population out of
● With lower unemployment, workers can demand higher money poverty. At this stage of their development, they do not have the
wages, which causes wage inflation. Also, firms can put up prices due technology or resources available to promote environmental protection.
to rising demand.
● Therefore, in this situation, we see falling unemployment but higher
inflation.

Conflict Three: Inflation and the equilibrium on the current account balance Conflict 4: Economic Growth and income inequality
of payments
- Economic growth often creates the best opportunities for those
If inflation is too low, a central bank will lower interest rates. who are highly skilled and educated.
=Aggregate demand will increase and so demand-pull inflation will rise. - The wealthy gain interest and dividends from their assets. This rent,
=This causes domestic goods to be less price competitive with those abroad. interest and dividends can be used to re-invest in increasing their
wealth. For the wealthy, it is a wealth creating cycle – which
=Exports will fall. increases their share of income.
=The rise in aggregate demand will also increase the demand for imports - Economic growth will not necessarily solve unemployment. For
(this is linked to the concept of the marginal propensity to import). example, growth cannot solve structural and frictional
=The combined effect means the current account will deteriorate. unemployment; this is unemployment caused by lack of skills and
geographical immobility
 d) Strengths and weaknesses of different supply-side policies

Supply side policies encourage economic growth and ● They take time to implement and for positive effects to be felt.
decrease inflation and unemployment. ● Some policies may not have intended impact or create negative
side-effects e.g. deregulation, such as lower benefits and reduced
minimum wages, may cause increased poverty.

Supply side policies can result in improved ● In a recession, increasing AS may be insufficient as the most
trade and balance of payments by making important thing is not supply side policies but policies to
firms more competitive, as they will be able to increase aggregate demand because impacts are felt more
rapidly.
export more.
 d) Strengths and weaknesses of different demand-side policies

Demand side policies aim to increase aggregate demand (AD). This ● Potential spike in inflation, and unsustainable growth. Especially if close
needs to be done during a recession or a period of below-trend or on productive potential - demand-pull inflation.
growth.- unlike supply side policy.

● Govt spending increases national debt -l increase the budget deficit

● Demand side policies can have significant time lags/delays -
government infrastructure projects
What makes a good essay?