1. Lesson 3 11E

2. Recap

3. 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

4. The Key Macroeconomic Concepts- an introduction

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

6. 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.

7. 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.

8. 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.

9. 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.

10. 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

11. 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

12. Lesson 3 11E 12

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

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

16. 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

17. http://www. guardian. co

18. 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.