Savings

Saving is "deferred spending"
A perference to consumer tomorrow rather than today
Saving is not investment
But saving flow into the financial system
.......and help to provid the funds for investment spending by firms
Introfuction
The household saving ratio is measured as the percentage of real disposable income that is saved rather than spent
Trend in the Saving Ratio
The saving ratio is the percentage of disposable income that is saved rather than spent
Saving provide a financial safety net for households
A fall in the saving ratio means that household are choosing spending today rather than tomorrow
This may be acccompanied by a build up of consumer debt which will have to be repaid at some point in the future

Measure Natoinal Income

What id National Income
National income measures the total value of goods and survices produced within the economy over a period of time
National Income can be calculates in three main ways
1.The sum od faceor incomes earned in production
2.Aggregate demand for goods and survices
3.The sum of value added from each prosuctive sector of economy
Gross Domestic Product(GDP)
GDP measures the value of output produced within the domestic boundaris of the UK
GDP includes the output of the foreign owned firms with production plants located in the UK
There are three ways of calculating GDP-all of which should sum to the same amount since bu identity
National Output=National Expenditure=National Income
Under the new definitions introduced in 1998 ,GDP is now known as Gross Valued Added

The Economic Cycle

The Economic Cycle
A term used to describe the tendency of economic activity to cycle along its trend path
Real GDP shows a series of peaks and troughs along its trend,characterising booms,slowdowns,recessions and recoveries
All countries experience economic cycles
The Need for Macroeconomic Stability
Large fluctuations in output,employment and inflation add to uncertainty for business and consumers,and can reduce the economy's long-term growth potential
Stability allows businesses,individuals and the Government to plan more effectively for the long term,improving the quantity and quantity of investment in physical and human capital and helping to raise productivity

Consumer spending

Key Issues
The meaning of consumption
Durable and non-durable goods
The key economic factors affecting household consumption
Macro-economic effects of changes in consumption
Consumption and monetary and fiscal policy
Background Information
Consumer spending is spending on household goods and services
We make a distinction between
Spending on durable goods
Spending on non-durable goods
Consumer spending is the largest component of AD
Change in consumer demand have an important impact on short run aggregate demand/economic growth

Aggergate Supply

Change in unit labour costs(ULCs)
Unit labour costs are defined as wage costs adjusted for the level of productivity
Changes to raw material costs other components
Fluctuations in the world price of oil,copper,aluminum and other essential inputs in many production processes
These costs might be affected by the exchange rate which cause fluctuations in the prices of imports
Change to producer taxes and subsidies levied by the government as part of their fiscal policy
Changes in VAT on building materials or duty on fuels

Productivity Growth

Productive is a measure of the efficiency of factors of production in the production process
It measures the output we get from a given amount of factor inputs
Higher productivity means that we can
Produce more goods and services at a lower cost per unit.This will help to reduce prices and increase consumer welfare.
Increase total output from our scare factor resources(causing an outward shift of the PPF)
Achieve a faster rate of economic growth because of a rise in LRAS
Measuring Productive
It is not possible to measure productive accurately and objectively in every industry-for example in services such as leisure and catering or eduction or social care services.
Labour productivity can be measured by calculating output per worker or output per hour worked
Output per hour worker takes into account the average number of hours worker over a given time period
Output per worker can vary for a number of reasons

Economic growth

Gross Domestic Product(GDP)
The money value of all goods and services produced within the UK
Also known as GDP at current price
Real GDP
The volume of goods and services produced within the UK(GDP adjusted for changes in the price level)
Also known as GDP at constant prices
Economic Growth
The rate of increase of GDP
Economics growth is best defined as the long run expansion of an economics's productive potential
The growth rate is also expressed as the percentage annual increase in a country's real GDP
Long term economic growth requires
An expansion of the supply(stock) of factor inputs(e.g.a rise in the labour supply)
Improvements in production technology
Increased factor productivity

Unemployment

Key issues
The meaning of unemployment
Different types of unemployment
Consequences of unemployment
Unemployment and economic growth
Recent trends in UK unemployment
Full employment
Measuring Unemployment
A Working Definition of Unemployment
People able,available and willing to find work and actively seeking work-but not employed
The unemployed are included in the labour force.
Types of Unemployment
Seasonal
Regular seasonal changes in employment/labour demand
Affects certain industries more than others
Catering and leisure
Construction
Retailing
Tourism
Agriculture
Type of unemployment
Frictional
Transitional unemployment due to people moving between jobs:includes people experiencing short spells of unemployment
Include new and returning entrants into the labour market
Imperfect information about available job opportunities can lengthen the period of some one's job search

Standard of living

What do we mean by the term"standard of living"
Sol is a measure of the changes in our economic welfare over time
Is the economy meeting people's need and wants?
Are our real incomes increasing?
The standard of living is basically a quantitative measure of our well-being
The baseline measure of living standard is real national income per capital
i.e.GDP divided by the total population
Real GDP per capital rises when real national output grows faster than population over a period of time
Other measure gives a broader assessment of living standards
Ownership of consumer durables
Personal/Household Wealth indicator
Environmental Indicators(sustainable economic welfare)
Social(Quantity of Life)indicators
Human Development Index(United Nations)
Index of sustainable EconomicWelfare(ISFW)

Balance of payment

The balance of payment accounts include:
a.Trade in goods
b.trade in services
c.The net flow of investment income from overseas assets.
d.Transfer of money between people and government
Trade in Services
Tourism and travel including Civil Aviation
Insurance and Business Consultancy Services
Banking and Accountancy services
Data process and other information services
Music and Entertainment
Shipping
Economic Effects of a Fall in Exports
Possible effects of a fall in demand for export in oversea markets
Negative impact on aggregate demand
C+I+G+(X-M)
Fall in national output-multiplier effect on income and spending
Might trigger an economic slowdown/recession
Actual GDP will fall below potential GDP(negative output gap)
Economic Policies to Reduce a Trade Gap
The cyclical element of the deficit tend to be self-correcting
A lower exchange rate improves the trade balance after a time lag-but this depends on the elasticity of demand and supply for UK output
Expenditure-switching Policies
Depreciation of exchange rate
Raises sterling price of imports
Higher profitability of exporting
But impact of lower exchange rate depends on elasticity of oversea demand for UK export

Exchange rate

The exchange rate is the value (or purchasing power)of a currency in terms of what it can buy of other currencies.
A large share of trading is purely speculative-i.e.currency dealer seeking to make a profit.E.g.buy US dollars in expectation that the dollar will rise against.
The UK operates with a floating exchange rate system.If the demand for sterling rises relative to supply then the external value of the pound will appreciate.If the supply of pounds on the foreign exchange market increase relative to demand,then the pound will depreciate in value.
During 2002 and 2003,the pound was rising against the US dollar(an exchange rate appreciation)
Exchange rates can be quite volatile and size able percentage changes over the course of a few months.
A high pound leads to lower import price-this boosts the real living standards of consumers at least in the short run.
A strong exchange rate helps to control inflation because domestic producers face stiffer international competition from cheaper imports and will look to cut their cost accordingly.

Aggregate demand

Today,I went to look at the revision presentation on aggregate demand.This is what it is about.