Macroeconomic Performance & Policy —
WEC12 notes

How the health of the whole economy is measured: real GDP and GNI, comparing growth, what GDP leaves out, inflation and deflation (how they are measured, their causes and effects), employment and unemployment, and the balance of payments.

• aMeasuring National Output & Comparing GrowthReal GDP · GNI · per capita · purchasing power parities · recession
• bWhat GDP Leaves OutLimitations of GDP and GNI · national happiness · wellbeing · subjective happiness
• cInflation & Deflation: Measurement, Causes & EffectsConsumer price index · producer price index · demand-pull · cost-push · money supply
• dMeasuring Employment & UnemploymentILO definition · underemployment · inactivity rates · net migration
• eCauses & Effects of UnemploymentFrictional · structural · demand-deficiency · real-wage inflexibility · public finances
• fThe Balance of PaymentsComponents of the balance of payments · trade in goods and services · current account deficits and surpluses

Total spending in the economy: the four components of aggregate demand (consumption, investment, government expenditure and net trade), what moves each one, and the difference between a movement along the AD curve and a shift.

• aThe Characteristics of ADThe four components · the AD curve · movement along, or a shift
• bConsumption (C)Disposable income · interest rates · consumer confidence · wealth effects · savings ratio
• cInvestment (I)Gross and net investment · business confidence · availability of credit · corporation tax
• dGovernment Expenditure (G)Fiscal policy · level of economic activity · market failures · political priorities
• eThe Net Trade Balance (X − M)Real income at home · exchange rate · global economy · protectionism · non-price factors

The productive capacity of the economy: the short-run AS curve and what shifts it, the classical and Keynesian shapes of long-run AS, and the long-run influences of technology, productivity, skills, regulation, demography and competition.

• aThe Characteristics of ASWhat aggregate supply is · SRAS curve slopes upward · a movement along or a shift
• bWhat Shifts Short-Run ASRaw materials and energy · exchange rates · tax rates
• cThe Shapes of Long-Run ASClassical LRAS · vertical at capacity · Keynesian LRAS · three ranges
• dLong-Run AS: Technology, Productivity & SkillsState of technology · productivity · education and skills
• eLong-Run AS: Regulation, Population & CompetitionGovernment regulations · demography · net migration · competition policy

The circular flow of income: injections and withdrawals, how equilibrium real national output is set by AD and AS, and the multiplier process that turns a change in spending into a larger shift of AD.

• aNational IncomeCircular flow of income · income, output and expenditure · income and wealth
• bInjections into the FlowInjections and withdrawals · investment · government expenditure · exports
• cWithdrawals & the Net PositionSavings · taxation · imports · net injections
• dEquilibrium Real National OutputEquilibrium on AD and AS · a shift in AD · a shift in AS
• eThe MultiplierMultiplier process · marginal propensity to consume · marginal propensity to import · calculating the multiplier
• fThe Multiplier, AD & Economic ActivityMultiplied shift of AD · how much of it becomes output · not a fixed number

What drives increases in output: actual and potential growth, the causes of potential growth, the benefits and costs of growth, and positive and negative output gaps.

• aActual & Potential GrowthActual and potential growth · aggregate demand · export-led growth
• bThe Causes of Potential GrowthDomestic investment and FDI · innovation · net migration · competition · productivity
• cThe Benefits of GrowthLiving standards · profits and investment · tax revenues · public services
• dThe Costs of GrowthOpportunity costs · environmental costs · balance of trade deficits · inequality · inflation
• eOutput GapsLong-term trend · positive and negative output gaps · hard to measure

The macroeconomic objectives and the policy toolkit used to reach them: fiscal, monetary and supply-side policies, the role of the central bank, their strengths and weaknesses, and the conflicts between objectives.

• aWhat Governments Are Aiming AtEconomic growth · low and stable inflation · low unemployment · balanced government budget · greater income equality
• bDemand-Side Policy & the Fiscal LeverReflationary and deflationary policies · spending and taxation · fiscal policy on AD/AS
• cMonetary Policy InstrumentsInterest rates · quantitative easing · lending criteria · reserve asset (liquidity) requirements
• dThe Central Bank & What Policy Can DoInflation target · banker to the government · strengths and weaknesses of fiscal policy
• eSupply-Side Policies: Free-Market & Interventionist RoutesDeregulation and privatisation · competition and incentives · education, training and skills · infrastructure · regional policy
• fConflicts Between ObjectivesShort-run Phillips curve · protection of the environment · inflation and the current account · growth and income equality