Lesson 3 11E

Recap

The Circular flow of Income The National income (rent, wages, interest and profits) Supply labour, land, capital, entrepreneurs The Output of goods and services Consumers Firms Consumption expenditure

The Key Macroeconomic Concepts- an introduction

Handout The UK Economy 16th April 2012 What are the key statistics mentioned in the news article?

An increase in output, real GDP, over a given period of time. The key macroeconomic concepts Economic Growth An increase in output, real GDP, over a given period of time. The rate of economic growth is used as a major indicator of economic performance. A positive, stable and sustainable rate of growth is a key macroeconomic objective for government.

An increase in the general price level over a given period of time. The key macroeconomic concepts Inflation An increase in the general price level over a given period of time. The rate of inflation is used as a major indicator of economic performance. A low and stable rate of inflation is a key macroeconomic objective for government.

The key macroeconomic concepts Unemployment People who are part of the working population, who are willing and able to work, but are without jobs. The rate of unemployment is used as a major indicator of economic performance. A low level of unemployment is a key macroeconomic objective for government.

Balance of Payments (BoP) The key macroeconomic concepts Balance of Payments (BoP) Is a record of all economic transactions between a country an the rest of the global economy. The BoP current account balance is used as a major indicator of economic performance. Long term stability in the current account is a key macroeconomic objective for government.

Equity in the distribution of income The key macroeconomic concepts Equity in the distribution of income A fair distribution of income (note this is a normative concept). Equity is not the same as equality (equality would mean that everyone gets an equal share of income) The way a government taxes and spends can redistribute the income in a country

A steady and sustainable increase of output (real GDP). Summary - The key macroeconomic objectives A steady and sustainable increase of output (real GDP). A low level of unemployment / high level of employment. A low and stable rate of inflation. A favourable balance of payments position. Equity in the distribution of income

Lesson 3 11E 12

Economic growth and the economic cycle/ business cycle/ trade cycle

The Business Cycle/ The Economic Cycle No notes Just lined paper for this section…

To manage the macroeconomy we need to measure actual and potential output If actual output> potential output = positive output gap= inflationary gap Output (real GDP) Actual output Output Gaps Trend output= potential GDP Peak boom Peak Trough If actual output< potential output = negative output gap= deflationary gap Contraction Expansion When an economy comes out of a recession i.e. real GDP begins to rise again this is called a recovery (economic growth will be positive eg. 0.2%) Trough If real GDP falls for 2 consecutive quarters it is called a recession (economic growth will be negative eg. -1%) Time

http://www. guardian. co http://www.guardian.co.uk/business/interactive/2008/oct/22/creditcrunch-recession

Handout The Economic Cycle Questions ET March 2006 Questions Sketch a simple economic cycle diagram Summarise the ‘stages’ of the economic cycle (refer to your diagram). Do not refer to the UK, just the theory. Summarise different explanations of the economic cycle. Do not write 1 long paragraph- a few short paragraphs.