2.1 Measures of economic performance
2.2 Aggregate demand (AD)
2.3 Aggregate supply (AS)
2.4 National income
2.5 Economic growth
2.6 Macroeconomic objectives and policies
Aggregate Demand (AD) Aggregate demand: The total demand for a country’s goods and services. Aggregate demand has many components. If any of these components increase, AD will shift to the right (AD → AD1). The term “aggregate” refers to the whole economy. Components of AD * Consumption (C) * Investment (I) * Government
a) Rates of change of real Gross Domestic Product (GDP) as a measure of economic growth b) Distinction between: o real and nominal Real GDP: Measures total output adjusted for inflation Nominal GDP: Is total output without adjustments for inflation o total and per capita Total GDP: Total output produced
1.2.1 Rational decision making a) The underlying assumptions of rational economic decision making: We often assume that people and businesses behave in a rational way. This means they make decisions logically to achieve the best possible outcome for themselves. These assumptions help economists predict behaviour, although in real
1.3.1 Types of Market Failure a) Understanding Market Failure Market failure occurs when the free market fails to allocate resources efficiently, leading to a loss of economic and social welfare. b) Types of Market Failure * Externalities – Costs or benefits affecting third parties not involved in the transaction. * Under-provision