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Chapter 1: Macroeconomics

Demand for goods and services are unlimited, but supply of goods is limited.

Actual and trend output

Circular flow of income


Chapter 2: Economic Growth

National output=National expenditure + National Income

GDP + NPIFA (Net property income form abroad) = GNP

A real measurement is the nominal minus inflation.

Defined as the increase in the potential level of real output the economy can produce over a given period of time.

Recession exists when GDP growth is negative for atleast two consecutive quarters.

AD and AS

Chapter 3: Unemployment

Defined as someone of the working age, out of work and has actively seeked a job within the past 4 weeks

CYCLICAL unemployment occurs when there is a negative output gap because AD is too low

STRUCTURAL unemployment exists when the structure of the economy changes and the decline in old industries creates a mismatch between the workers with outmoded skills looking for jobs and the vacancies available in new industries

FRICTIONAL unemployment is when a worker is 'in between jobs', spending time looking for, or moving between jobs.

SEASONAL unemployment results from regular fluctuations in weather conditions (therefore demand at that time) eg. Tourism or agriculture

CLASSICAL unemployment occurs when the real wage is above the labour market equilibrium

Chapter 4: Inflation

Defined as a genral rise in the price level of over a certain period of time.

DEMAND PULL inflation occurs when AD rises above trend output so firms respond by raising prices

COST PUSH inflation is when the cost of production for firms increases so they must increase their prices

Inflation is a problem because:

Demand pull inflation can be cured with fiscal and monetary policies. Cost push can be cured with supply side policies that raise productivity

Deflation is a sustained reduction in the price level. The figure must be negative for deflation, if the number is positive but getting lower, it is still inflation at a lower rate.

Chapter 5: The Current Account

THE BALANCE OF PAYMENTS is a record of transactions between one country and the rest of the world.

Exports of goods and services - Imports of goods and services = Balance in trade of goos and services.

+/- Net investment inflows +/- Net transfers = Current account balance

Factors affecting the current account:

The Exchange Rate is defined as the price of one currency expressed in the terms of another currency