Knowledge Book. Theme 2. Edexcel A LEvel SKU:

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1 Edexcel A LEvel economics Theme Knowledge Book Study Notes Revision Videos Exam Technique Advice You ll find everything you need for Edexcel A Level Economics at: Follow tutoru Economics on SKU: Student Name:

2 CONTENTS. Measures of Economic Performance Page.. Economic Growth Page.. Inflation Page 6.. employment and unemployment Page..4 The Balance of Payments Page 7. Aggregate Demand Page 0.. Aggregate Demand Page 0.. Consumption Page.. Investment Page..4 Government expenditure Page 7..4 Net trade Page 9. Aggregate Supply Page.. Characteristics of Aggregate Supply Page.. Short-run AS Page 4.. Long-run AS Page 6.4 National Income Page 4.4. National income Page 4.4. injections and withdrawals Page 4.4. equilibrium national output Page the multiplier Page 47.5 Economic Growth Page Causes of growth Page output gaps Page 5.5. Trade (business) cycle Page the impact of economic growth Page 58.6 Macroeconomic Objectives and Policies Page 6.6. possible macroeconomic objectives Page 6.6. Demand-side policies Page 6.6. Supply-side policies Page Conflicts and trade-offs between objectives and policies Page 84. Measures of Economic Performance.. Economic Growth This section of the specification covers:.. Economic Growth.. Inflation.. Employment and Unemployment..4 Balance of Payments 0 Define this Gross domestic product Economic growth Purchasing power parity Living standards National wellbeing 0 Give me! Give me different measures of macroeconomic performance EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied

3 . Aggregate Demand This section of the specification covers:.. The Characteristics of Aggregate Demand.. Consumption (C).. Investment (I)..4 Government Expenditure (G)..5 Net Trade (X-M) Net trade 0 Label me! Label the following diagram showing the Aggregate Demand curve.. Aggregate Demand 0 What s the formula? What is the formula for calculating Aggregate Demand? 0 Define this Aggregate demand Real GDP General price level Consumer spending Investment Government spending 04 Give me! Give me reasons why a business might decide to increase Investment Give me causes of a change in the Net Trade balance 0 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied

4 Real income Appreciation (of the currency) Depreciation (of the currency) 0 Tell me! 0 Give me! Give me two reasons why the Aggregate Demand curve slopes downwards 04 Tell me! Tell me the importance for the economy of having Automatic Stabilisers in place Tell me how each of the following scenarios is likely to impact on the UK s trade balance An increase in the UK s growth rate A fall in real disposable income in the UK 05 Categorise me! Consumption Investment Government Spending Net Trade An appreciation of the against other currencies Spending on food and drink The world economy tips into recession Spending on unemployment and disability benefits Spending on new manufacturing machinery made in Korea The EU imposes more protectionist measures on the UK An increase in the quality of UK services Spending on Italian shoes Spending on primary education Spending on recruiting and training extra supermarket staff 0 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied

5 06 In the real world... Find out how much of the UK s GDP comes from each of these sectors Factors of production Agriculture Manufacturing Construction Mining Services Full employment Compare with the GDP of another country of your choice Agriculture Mining 0 What s the difference? Factors of production and factor payments Manufacturing Services Construction Production and productivity. Aggregate Supply This section of the specification covers:.. The Characteristics of Aggregate Supply.. Short-run AS.. Long-run AS A movement along an AS curve and a shift of the AS curve 0 Draw me!.. Characteristics of Aggregate Supply 0 Define this Aggregate supply A classical short-run aggregate supply curve A classical long-run aggregate supply curve Long run Short run EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied

6 A Keynesian aggregate supply curve A production possibility curve A depreciation of the causing imported raw materials to become more expensive Diagram.. Short-run AS 0 Draw me and tell me! Show Aggregate the impact on SRAS of each of the following scenarios draw an appropriate diagram and write a supply short explanation of each An increase in the National Living Wage rate Diagram A rise in energy costs Diagram A fall in the world price of oil A fall in the rate of VAT Diagram Diagram 4 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied 5

7 0 Tell me! Tell me the value to the Government of knowing the size of the multiplier Give me influences on each of the following MPC Influence MPS Influence Tell me a current estimate of the size of the multiplier in the UK Influence Influence Tell me the factors that are most likely to affect the value of the multiplier in the UK MPT Influence MPM Influence 0 Calculate this! Use this information to calculate the effect on the economy of an injection of bn of government spending Version Version MPC = 0.6 MPT = 0. MPS = 0. MPM = 0. Influence Influence 05 Give me! Give me consequences of an increase in the value of the multiplier 04 Give me! Give me ways in which to calculate the value of the multiplier 48 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied 49

8 Give me consequences of a rise in the value of the MPM 0 Pros and Cons Identify two advantages and two disadvantages of export-led growth Advantage Disadvantage Give me consequences of a rise in the value of the MPT Advantage Disadvantage Identify two advantages and two disadvantages of growth fuelled by consumer spending Advantage Disadvantage.5 Economic Growth This section of the specification covers:.5. Causes of Growth.5. Output Gaps.5. Trade (business) cycle.5.4 The impact of Economic Growth Advantage Disadvantage.5. Causes of growth 0 What s the difference? Identify two advantages and two disadvantages of growth caused by high levels of investment Advantage Disadvantage Actual Economic Growth and Potential Economic Growth Nominal Economic Growth and Real Economic Growth Advantage Disadvantage 50 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied 5

9 0 Give me 5! Give me 5 factors that are likely to lead to actual growth in the UK 4 5 Give me 5 factors that are likely to cause potential growth in the UK.5. output gaps 0 Define this Positive output gap Negative output gap Trend growth rate Actual growth rate 0 Draw me! Draw an AD / AS diagram to illustrate a positive output gap Draw an AD / AS diagram to illustrate a negative output gap Categorise me! Which of these will inhibit the growth rate of the UK economy? Net immigration of skilled workers The UK productivity crisis A positive output gap Will inhibit growth rate Will not inhibit growth rate 0 Give me! Give me disadvantages to an economy of having a positive output gap Government spending on rail infrastructure Slow GDP growth in the EU New regulation of the financial sector which limits credit markets 5 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied 5

10 Advantage Disadvantage Draw a PPF or the economic cycle diagram / trend diagram to show the impact of supply-side policies (such as improvement in education and training) on the underlying trend rate of growth over time 04 Give me! Give me examples from the last UK Budget Statement of demand-side policies Give me examples from the last UK Budget Statement of supply-side policies 05 Draw me! Draw an AD/AS diagram to the show the impact of supply-side policies (such as improvement in education and training) in the economy on real GDP, unemployment, and the price level ! Give me 5 ways in which the government can use fiscal policy measures (tax or government spending) to improve the supply-side of the economy 4 5 Give me 4 ways in which the government could incentivise businesses to be more innovative and carry out more Research and Development 4 80 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied 8

11 Give me education policies that the government could implement to improve the supply-side of the economy Subsidising the building of broadband infrastructure Awarding tax credits to firms that carry out innovative research Give me examples of industrial policy that the UK government has used Give me way in which the government could encourage higher productivity in the UK economy 08 Tell me more! Tell me the impact on the macroeconomic objectives of each of the following fiscal policy scenarios Policy Decreasing the rate of corporation tax Economic growth Inflation Unemployment Current Account Budget Balance 07 Tell me! Tell me how each of the policies below will cause an increase in the economy s productive potential i.e. an increase in LRAS Policy More government spending on apprenticeships for school leavers A cut in the rate of income tax for all workers Increasing spending on transport infrastructure Providing retraining schemes for the long-term unemployed A cut in the rate of corporation tax Welfare reforms that make it more difficult to receive benefits Increasing the value of the Personal Allowance 8 EDEXCEL A Level Economics Theme Knowledge Book Not to be photocopied 8