Aggregate Demand = Total planned spending in an economy in a given time period Components = I+C+G+(X-M) Consumption = Spending by households on domestically

produced goods and services Investment = Spending by firms on capital goods to help raise output. government Spending = Capital Expenditure on fixed assets Net Exports = Difference between export revenue and import expenditure Aggregate demand and price level are inversely related due to: Wealth effect: Increase price level = Money buys less = Lower RGDP Interest Rate: Increase demand for fixed supply of money causes interest rates and price of money to rise Net Exports: Increase in the price level of domestic goods means more demand for cheaper imports and less demand from overseas for our more expensive exports Aggregate demand may shift as it is influenced by the price level in the economy, it may shift due to changes in any component of AD Aggregate Supply The amount that producers are willing and able to produce in an economy at a given price in a given time period It is influenced by the capacity in the economy. Macroeconomic equilibrium occurs when aggregate demand and aggregate supply meet to form the price level and the output. The equilibrium will alter if either AD/AS changes. The circular flow of income = Income and expenditure in and economy between households and firms. Multiplier effect Injections into the circular flow of income triggers rounds of spending Leakages Money leaving an economy (Taxes, Saving, Imports) Injections Money entering an economy (Government Spending, Exports, Investment) Influences on AD: Consumption: Consumer Confidence, Incomes, Interest Rates, Saving, supply of credit Investment: Business confidence, Availability of credit, Government Incentives, Corporation tax Government Spending: Political Cycle, Budget deficit, National Debt Net Exports: Incomes, Exchange rate, Inflation rate Influences on AS: Long Term: Changes in Quality/Quantity (privatisation, deregulation, education & training) Short Term: Changes in Cost of Production (Changes in wage costs/raw material costs) Changes to output (AD rises Output rises, AS falls output falls) Changes in price level (AD Rises price level rises, AS rises Price level falls) Changes in employment (AD falls Employment falls, AS rises employment rises)

Economic growth Increase in the productive potential of an economy and is measure by a change in real GDP Unemployment Workers willing and able to work but are unable to find a job at the given wage rate. Inflation Increase in the price level of a good/services in an economy in a given time period. Balance of Paymenrs Transactions between the UK and the rest of the world Income Redistribution Transfer of money between the wealthy and the poor. Economic stability Objectives Economic Growth Long term and positive growth Unemployment as close to full employment as possible Inflation Low and stable inflation (+-2%) Balance Of Payments A manageable surplus/deficit Income Redistribution a fairer income redistribution and close the gap between the rich and the poor Economic stability To have a stable economy. Measurements Economic Growth MEASURED BY A CHANGE IN REAL GDP using: income tracks changes in factor payments Output C+I+G+(x-M) Expenditure The value of goods and services produced in an economy. Unemployment Claimant Count Number of people claiming JSA (NO OVERSEAS COMPARRISON) Labour force survey Questionnaire for the labour force Inflation CPI Conduct family survey (1000 households) assign a basket of goods, weight each item (Price) , index, track changes in price, multiply weight and index Balance Of Payments Using data from the government KPI Details Economic Growth -Actual Growth More is being produced =Potential Growth More can be produced -Real GDP adjusted for inflation -Nominal GDP NOT adjusted for inflation CAUSES OF ACTUAL GROWTH ANY INCREASES IN FACTORS OF AD CAUSES OF POTENTIAL GROWTH Bigger labour force Higher Productivity Better technology

Benefits Of Growth Higher Income More jobs Less Poverty Better Government finances

Consequences of Growth Damage to environment Inflation Worsen BoP More inequality More leisure time sacrificed

Problems of Measuring it is that work is done in the informal economy and cash in hand work. COMMENTARY -Is it sustainable growth - Income elasticity for imports -Is it stable/volatile? Unemployment Types of unemployment Demand Deficient not enough demand for labour Structural Movement of workers from one sector to another Frictional People moving between jobs Technological Workers replaced by machines Seasonal Workers arent needed all the time (ie Farming) Unemployment rate Unemployed X 100 ------------------------Labour Force Advantages of Unemployment Lower Inflationary Pressures More workers available Education = more productivity Disadvantages of unemployment Lost Output Hysteresis effect Higher Inequality Lower government budget