Economics Unit 2
Mindmap for Macroeconomics, Unit 2 AQA AS Economics
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?- Created by: Taylor Johnson
- Created on: 12-05-13 17:15
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- Economics Unit 2
- Aggregate Demand
- Aggregate Supply
- Short Run
- Shifts
- Change in wage rates
- Change in raw material prices
- Change in tax (corporation tax for example)
- Change in the rate of interest
- Linked to national income analysis
- Shifts
- Long run
- Shifts
- Raising skills levels
- Technological advances
- Increasing levels of immigration
- Government policies = greater efficiency
- Increase in investement
- Linked to economic growth
- Shifts
- Short Run
- Policies
- Fiscal
- Government spending & Taxation
- Expansionary/ loosening
- Rise in spending and/or fall in tax
- Inflation
- Lead to higher due to a rise in AD
- Unemployment
- Fall in short run/ Keynesian model
- Classical view = only change if there is a change in production capacity
- Economic growth
- Lead to an increase in real GDP
- Balance of payments
- Deterioration of current account due to ore imports
- Tightening
- Rise in tax and/or fall in spending
- Monetary
- Monetary Policy Committee (MPC)
- Target of 2% pa
- Controls the rate of interest
- Higher the rate of interest
- Lower AD
- Consumption decreases (borrowing is more expensive)
- Less investment as less profitable due to rate of return
- Housing decreases due to mortgage payments rising
- Marginal Propensity to Save would rise as savings are more attractive
- Monetary Policy Committee (MPC)
- Supply side
- Incentives to work
- Marketeers: Reduce tax rates on high income earners to increase incentives for investment
- Interventionist: Lower rates could make some people work less hours for the same money
- Poverty trap
- Marketeers: Some people would rather get state benefits rather than work for the same money
- Interventionists: Cutting state benefits cause a grater poverty
- Union power
- Marketeers: Unions cause wages to be too high therefore greater unemployment
- Interventionists: Employers would exploit labour and legislation alongside unions are there to stop that happening
- Mobility of capital and labour
- Marketeers: Free movement nationally and internationally including immigration
- Interventionists: Grants should be given to companies to locate where there is high levels of unemployment
- Education and training
- Marketeers: The market would provide and ensure the level of education and training needed in the market.
- Interventionists: Grants + subsidies should be given as it is under provided.
- Entrepreneurship and investement
- Marketeers: Increase incentive by reducing corp. tax and inheritance tax
- Interventionalist: Offer a range of tax reliefs and provide subsidies to firms
- Privatisation and deregulation
- Marketeers: The government should only be involved when there is market failure
- Interventionists: There should be privatisation of natural monopolies
- Incentives to work
- Fiscal
- Inflation
- Cost push
- Usually caused by cost of production increasing
- Demand pull
- Caused by an increase in AD, lead to a 'excess demand' therefore pull up prices
- Cost push
- Unemployment
- Types
- Cylical
- Relates to the economics cycle
- Structural
- Geographical/ skills in the wrong regions
- Seasonal
- Particular industries (tourism)
- Frictional
- Movement between jobs
- Cylical
- Measurement
- Claimant count (Job seekers allowance)
- Labour Force survey
- Types
- Economic Growth
- Economic cycle
- Peak/Boom: GDP is growing fast, consumption is high, unemployment is low, high inflationary pressures, high investment
- Downturn: Rate of growth of GDP begins to fall, investment and consumption slowing and leading to less inflationary pressures
- Recession: Rate of growth is negative, unemployment will rise, low investment and consumption
- Recovery: GDP begins to pick up, Investment and consumption begin to rise and unemployment begins to fall
- Measured by Real GDP (Gross Domestic Product)
- If the rate of growth is below 0 then the economy is in a recession
- Economic cycle
- Balance of Payments
- Current account
- Made up of trade in goods and services, assets abroad and foreign aid
- Capital account
- Purchases and sales of assets the balance the payments account
- Current account
- Circular Flow of Income
- Withdrawls
- Savings
- Taxation
- Imports
- Injections
- Investement
- Government spending
- Exports
- Firms pay: wages, rent, interest and profit. Consumers buy the product. Money goes through the loop
- Withdrawls
- Exchange rate
- Appreciation
- Makes the pound more expensive therefore less competitive around the world economy
- Imports would increase and exports would decrease
- Current account deficit
- Depreciation
- Makes the pound cheaper therefore more competitive in the world economy
- Imports would decreasing and exports would increasing
- Improving the current account
- Appreciation
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