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CYCLES AND GROWTH

AS Macro

Session 1

33

TASK: What are the main indicators of

macro-economic performance?

Inflation^ Inflation^ UnemploymentUnemployment

Economic Growth

Economic Growth

Fiscal objectives

Fiscal You have 30 seconds objectives

33

Income inequality… Environmental

account sustainability…^ objectives… Current

Exam tip: Definitions

Throughout your answers you will need to provide definitions of the key economic

concepts. Sometimes a question will explicitly ask for a definition and at other

times you will need to define a concept as part of a longer answer on a wider set of

topics.

Definitions should be succinct but contain the core information to illustrate the

meaning of a concept. At times, a diagram may be the best way to illustrate a definition.

33

UK Growth, quarter on previous quarter

2007 2008 2009 2010 2011 2012 2013

-2.

-1.

-0.

0

1

% Key point: The length of the positive and negative growth periods vary. Since 2007 the changes in growth has seen rapid variation. 44

5 consecutive quarters of negative real GDP

growth

Double dip…?

AGGREGATE DEMAND =

C^ C^ II^ GG^ XX^ MM

EXPENDITURE^ EXPENDITURECONSUMER^ CONSUMER^ INVESTMENTINVESTMENT^ GOVERNMENTGOVERNMENT SPENDING^ SPENDING^ EXPORTSEXPORTS^ IMPORTSIMPORTS

55

Task:

Look at these factors that affect aggregate demand. Which two have the biggest impact on consumer (^) spending and exports of goods and services and why?

Look at these factors that affect aggregate demand. Which two have the biggest impact on consumer spending and exports of goods and services and why? Which have an impact on consumption Why is this most significant? Disposable income falls

Spending on non- essential items falls immediately

An increase in interest rates

Large number of people who have mortgages see payments rise so spending on non-essential items

66 falls immediately

C is c.66% of AD in UK… c.30% in China

In UK more so than in Germany…

Task:

Look at these factors that affect aggregate demand. Which two have the biggest impact on consumer (^) spending and exports of goods and services and why?

Look at these factors that affect aggregate demand. Which two have the biggest impact on consumer spending and exports of goods and services and why? Which have an impact on exports Why is this most significant? Exchange rate decreases

All exports become less expensive abroad so sales rise Continued recession in Eurozone area

Eurozone is the most important trading area for the UK 66

Depends how important X is to your GDP e.g.

Singapore and Germany vs U.S and U.K

Eurozone (vs 17% to^ c.50% of UK X to

USA)

Significant feature 1

Significant feature 2

All components saw a decrease in the percentage change in 2011 compared to variable changes in other years. For example, G saw a 0.5% per cent fall. Government consumption had the least amount of change over the time period, with the variance between -0.7% and 1.7% (2.4 variance of between 0.3% and 7.9% (7.6 percentage points) percentage points ). By contrast, Imports saw a

Task:

Look at the data on UK Aggregate Demand on page 5. Compare 2 significant features of the data provided (^) above for the UK Aggregate Demand Components.

Look at the data on UK Aggregate Demand on page 5. Compare 2 significant features of the data provided

77^ above for the UK Aggregate Demand Components.

AD-AS Analysis

UK Car Production

Factor 2: Continued investment in research and development improved production techniques.Factor 2: Continued investment in research and development improved production techniques.

Average Price Level

Real National Output

AD

SRAS

P

Y

P Y

SRAS

88

UK Car Production

Suggest 3 other factors that can shift the short-run aggregate supply curve that could account for the

improvement in the output of cars in the UK.

Suggest 3 other factors that can shift the short-run aggregate supply curve that could account for the

improvement in the output of cars in the UK.

You have 2 minutes

Increase in investment on training. To ensure that UK workers are as competitive as foreign workers in car industry. Use of high capacity factory to improve economies of scale – particularly important to reduce costs in motor industry

Reduction in corporation tax leading to overall reduction in costs

Affects RULCs…

Lowers LRAC

Anything that affects costs, effects SRAS

Long Run Aggregate Supply TASK: Analyse the view that inward investment into the UK (such as an increase in inward investment from China) leads to an increase in long run aggregate supply in the UK.

TASK: Analyse the view that inward investment into the UK (such as an increase in inward investment from China) leads to an increase in long run aggregate supply in the UK. This means that…^ Inward investment into the UK lead to… This can This can cause… It depends upon… There is an increase in investment in UK manufacturing

There is an increase in investment in UK manufacturing

the productiveAn increase in efficiency of UK manufacturing

the productive^ An increase in efficiency of UK manufacturing

A reduction in the average manufactured^ cost of goods in the UK

A reduction in the average manufactured^ cost of goods in the UK

The quality of the investment and the nature of it

The quality of the investment and the (^99) nature of it

Reason why it is very important:Reason why it is very important: Can improve the long-term productivity of UK without requiring Government finances

Can improve the long-term productivity of UK without requiring Government finances

A factor that may be moreA factor that may be more important: important: The skills taught in schools andThe skills taught in schools and colleges colleges

1010 Long Run Aggregate Supply TASK: Analyse the view that inward investment into the UK (such as an increase in inward investment from China) leads to an increase in long run aggregate supply in the UK.

TASK: Analyse the view that inward investment into the UK (such as an increase in inward investment from China) leads to an increase in long run aggregate supply in the UK. Inward investment into the UK