Macro Economics Book 2 AS Level Notes

500.00

Book Code : 158
Number of Pages : 128
Author : Imran Latif
Language : English
Publishers : Read and Write Publications

 

Categories: ,

Description

TABLE OF CONTENTS
UNIT 1 AGGREGATE DEMAND (AD) AND AGGREGATE SUPPLY (AS) ………………………………………………………… 22
CONCEPTS OF NATIONAL INCOME …………………………………………………………………………………………………………………… 22
SECTORS AND TYPES OF ECONOMIES: ………………………………………………………………………………………………………………. 23
AGGREGATE DEMAND (AD): ………………………………………………………………………………………………………………………… 24
Why does the AD curve slope downward?…………………………………………………………………………………………….. 25
Changes in Aggregate Demand …………………………………………………………………………………………………………… 25
AGGREGATE SUPPLY (AS) …………………………………………………………………………………………………………………………….. 28
The short-run aggregate supply curve ………………………………………………………………………………………………….. 28
The shape of the long-run aggregate supply curve ………………………………………………………………………………… 29
INTERACTION OF AGGREGATE DEMAND AND AGGREGATE SUPPLY AND NATIONAL INCOME EQUILIBRIUM ………………………………….. 32
CHANGES IN NATIONAL INCOME EQUILIBRIUM …………………………………………………………………………………………………….. 32
BUSINESS (TRADE) CYCLE …………………………………………………………………………………………………………………………….. 34
UNIT 2 MONEY AND INFLATION ……………………………………………………………………………………………………….. 38
MONEY …………………………………………………………………………………………………………………………………………………. 38
History of specialization, trade, and money ………………………………………………………………………………………….. 38
Concepts ………………………………………………………………………………………………………………………………………….. 39
Features of money …………………………………………………………………………………………………………………………….. 39
Functions of money: …………………………………………………………………………………………………………………………… 40
INFLATION ………………………………………………………………………………………………………………………………………………. 41
MEASUREMENT OF INFLATION / VALUE OF MONEY / COST OF LIVING ………………………………………………………………………… 43
THE CAUSES OF INFLATION ……………………………………………………………………………………………………………………………. 45
Demand-pull Inflation ………………………………………………………………………………………………………………………… 45
Cost-push Inflation …………………………………………………………………………………………………………………………….. 45
THE CONSEQUENCES OF INFLATION …………………………………………………………………………………………………………………. 47
Costs: ………………………………………………………………………………………………………………………………………………. 47
Benefits ……………………………………………………………………………………………………………………………………………. 49
CAUSES AND CONSEQUENCES OF DEFLATION ………………………………………………………………………………………………………. 52
PAST PAPER QUESTIONS ………………………………………………………………………………………………………………………… 53
UNIT 3 INTERNATIONAL TRADE ………………………………………………………………………………………………………… 58
DOMESTIC AND INTERNATIONAL TRADE ……………………………………………………………………………………………………………. 58
THEORIES OF INTERNATIONAL TRADE: ………………………………………………………………………………………………………………. 58
Theory of absolute advantage …………………………………………………………………………………………………………….. 58
Theory of Comparative advantage ………………………………………………………………………………………………………. 60
Mutually beneficial rate of exchange: ………………………………………………………………………………………………….. 61
Trading possibility curve (TPC): ……………………………………………………………………………………………………………. 61
LIMITATIONS OF ABSOLUTE AND COMPARATIVE ADVANTAGE THEORY: …………………………………………………………………………. 62
PROTECTIONISM ……………………………………………………………………………………………………………………………………….. 63
Methods of protection and their impact ……………………………………………………………………………………………….. 64
Effectiveness of protectionism: ……………………………………………………………………………………………………………. 67
THE ARGUMENTS IN FAVOR OF FREE TRADE AND AGAINST PROTECTIONISM ……………………………………………………………………. 67
THE ARGUMENTS IN FAVOR OF PROTECTIONISM AND AGAINST FREE TRADE ……………………………………………………………………. 68
TRADE BLOCS OR INTERNATIONAL ECONOMIC INTEGRATION …………………………………………………………………………………….. 70
CONSEQUENCES OF FORMATION OF TRADING BLOCS: …………………………………………………………………………………………….. 72
1. Trade creation ……………………………………………………………………………………………………………………………….. 72
2. Trade diversion ……………………………………………………………………………………………………………………………… 73
PAST PAPERS QUESTION ………………………………………………………………………………………………………………………… 75
4
UNIT 4 EXCHANGE RATE ………………………………………………………………………………………………………………….. 82
DEFINITIONS AND MEASUREMENT OF EXCHANGE RATES ………………………………………………………………………………………….. 82
EXCHANGE RATE SYSTEMS ……………………………………………………………………………………………………………………………. 82
Free Floating Exchange Rate System ……………………………………………………………………………………………………. 83
Fixed Exchange Rate System ……………………………………………………………………………………………………………….. 86
CAUSES OF EXCHANGE RATE DEPRECIATION ……………………………………………………………………………………………………….. 87
CAUSES OF EXCHANGE RATE APPRECIATION ……………………………………………………………………………………………………….. 89
EFFECTS OF DEPRECIATION/DEVALUATION ………………………………………………………………………………………………………… 91
EFFECTS OF APPRECIATION/REVALUATION………………………………………………………………………………………………………….. 93
ADVANTAGES AND DISADVANTAGES OF EXCHANGE RATE SYSTEMS: …………………………………………………………………………….. 95
Managed floating system …………………………………………………………………………………………………………………… 97
THE TERMS OF TRADE …………………………………………………………………………………………………………………………………. 98
Movements in Terms of Trade …………………………………………………………………………………………………………….. 98
The Impact of changes in the terms of trade ……………………………………………………………………………………….. 100
PAST PAPER QUESTIONS ………………………………………………………………………………………………………………………. 102
UNIT 5 BALANCE OF PAYMENTS ……………………………………………………………………………………………………… 106
COMPONENTS OF THE BALANCE OF PAYMENTS…………………………………………………………………………………………………… 107
BALANCE OF PAYMENT DISEQUILIBRIUM ………………………………………………………………………………………………………….. 110
CAUSES OF BALANCE OF PAYMENT DISEQUILIBRIUM …………………………………………………………………………………………….. 110
CONSEQUENCES OF A CURRENT ACCOUNT DEFICIT AND A CURRENT ACCOUNT SURPLUS ……………………………………………………. 112
Consequences of current account deficit: ……………………………………………………………………………………………. 112
Consequences of current account surplus: ………………………………………………………………………………………….. 112
PAST PAPER QUESTIONS ………………………………………………………………………………………………………………………. 114
UNIT 6 GOVERNMENT INTERVENTION IN A MACRO-ECONOMY …………………………………………………………… 116
MACROECONOMIC POLICIES: ………………………………………………………………………………………………………………………. 116
1. Fiscal policy …………………………………………………………………………………………………………………………………. 116
2. Monetary policy …………………………………………………………………………………………………………………………… 119
3. Supply-side policy …………………………………………………………………………………………………………………………. 121
POLICIES TO CORRECT CURRENT ACCOUNT DEFICIT ………………………………………………………………………………………………. 123
1. Expenditure-switching policies: ……………………………………………………………………………………………………… 123
2. Expenditure-dampening policies: ……………………………………………………………………………………………………. 125
POLICIES TO REDUCE CURRENT ACCOUNT SURPLUS: …………………………………………………………………………………………….. 126
POLICIES TO CORRECT DEMAND-PULL INFLATION ………………………………………………………………………………………………… 126
POLICIES TO CORRECT COST-PUSH INFLATION…………………………………………………………………………………………………….. 126
POLICIES TO CORRECT DEFLATION AND THEIR EFFECTIVENESS ………………………………………………………………………………….. 127
PAST PAPER QUESTIONS ……………………………………………………………………………………………………………………………. 127

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