ECONOMICS O LEVEL (2281) – SUMMARY NOTES (GRADE 11)
Whatsapp / Tel: +230 57883457
Macro economy
Macroeconomic aims:
1. Economic growth
2. Price stability
3. Full employment
4. Satisfactory balance of payment
5. More equal distribution of income
Economic growth
Economic growth refers to a rise in the GDP for a given period of time.
GDP refers to the total value of goods and services that a country can produce with its
existing resources.
Recession is a reduction in the real GDP over a period of 6 months or more.
Actual and potential economic growth 1. The movement from A to B is the actual
economic growth. ( cause = increase in
demand)
2. The movement from C to D represents
the potential economic growth due to an
increase in quantity and quality of factor
of production. ( cause = increase in
supply)
Gross domestic product Calculate GDP
GDP = C + I + G + X – M 1. Output method - Add all output
C = consumption produced by industries.
I = investment 2. Income method – add all income
G = government expenditure earned by factors of production
X =exports 3. Expenditure method – adding all the
M = imports expenditures of the country s output.
Prepared by VAISHNAVI RAMPARE 1
,ECONOMICS O LEVEL (2281) – SUMMARY NOTES (GRADE 11)
Whatsapp / Tel: +230 57883457
Nominal GDP Real GDP
It refers to GDP at current market prices and not It refers to GDP at constant prices and adjusted for
adjusted for inflation, giving a misleading inflation.
impression of what is happening to the output. Real GDP = nominal GDP 100
Current year price index
Real GDP per head = real GDP
population
Causes of economic growth
1. Increase in aggregate 2. An increase in quantity of 3. An increase in quality of
demand resources resources
Reasons for increase in AD Net investment rises Improvement in
Increase in consumer Labour force rises education
confidence Training and advances in
Cut in income tax technology
Advantages of economic growth Disadvantages of economic growth
1. Creation of jobs 1. External costs
Firms expand output – employ more Expand output – pollution/ congestion/
employees – income rises – purchasing depletion of non renewable resources/
power rises – standard of living rises destruction of wildlife.
2. Raise government revenue 2. Inflation
Income tax rises – government revenue Creation of jobs – income rises – AD rises –
rises – give subsidies – supply of the firms demand pull inflation
rises – revenue rises – profits rises – 3. Social impact
corporate tax rises – government spend on Longer hours of work
merit goods Stress causing health problems
3. Encourage investment 4. In the long run there may be structural
firms are more optimistic to start up their unemployment
business 5. Worsen current account
4. Reduce absolute poverty Income rises – import rises
5. Improve current account in balance of
payment
Output rises – exports rises
More locally produced goods – imports
reduces
6. Reduce external costs
Build roads – reduce traffic jams
Prepared by VAISHNAVI RAMPARE 2
, ECONOMICS O LEVEL (2281) – SUMMARY NOTES (GRADE 11)
Whatsapp / Tel: +230 57883457
Inflation
It is the continuous rise in the general price level accompanied by a fall in the value of money.
Cost of living rises while standard of living reduces.
Real wages: purchasing power of money wages. It reflects the amount of money in terms of
what it can buy.
Retail price index: A statistical index used to measure the rate of change in the price of 2 set of related
goods over a period of one year.
How is RPI calculated?
1. Choose a base year – a year is chosen as base year and the index is given as 100 ( base
year = a year with no cyclone or political instability)
2. Select a basket of goods – a family expenditure survey is carried out where they choose
a basket of sample goods and services which the households consumes the most.
3. Collect a price list from various retail outlets
4. Attached weights - % of consumption or income spent
5. Calculate inflation rate - current CPI – original CPI 100
Original CPI
Uses of CPI Causes of inflation
1. To measure cost of living 1. Demand pull inflation
It occurs to an excess of demand at full
2. To measure % change in price level employment.
AD = C + I + G + X – M
3. Help government in setting targets and Solution: use contractionary fiscal policy
designing policies Use contractionary monetary policy
4. To increase pensions 2. Cost push inflation
It occurs due to a rise in cost of production
5. To compare inflation rate with other where firms pass on the cost to consumers.
countries to maintain its price
competitiveness 3. Imported inflation
Price abroad rises – import the goods – local
price rises.
4. Monetary inflation
Government increases money supply to pay
debts – money supply rises faster than output
Prepared by VAISHNAVI RAMPARE 3
Whatsapp / Tel: +230 57883457
Macro economy
Macroeconomic aims:
1. Economic growth
2. Price stability
3. Full employment
4. Satisfactory balance of payment
5. More equal distribution of income
Economic growth
Economic growth refers to a rise in the GDP for a given period of time.
GDP refers to the total value of goods and services that a country can produce with its
existing resources.
Recession is a reduction in the real GDP over a period of 6 months or more.
Actual and potential economic growth 1. The movement from A to B is the actual
economic growth. ( cause = increase in
demand)
2. The movement from C to D represents
the potential economic growth due to an
increase in quantity and quality of factor
of production. ( cause = increase in
supply)
Gross domestic product Calculate GDP
GDP = C + I + G + X – M 1. Output method - Add all output
C = consumption produced by industries.
I = investment 2. Income method – add all income
G = government expenditure earned by factors of production
X =exports 3. Expenditure method – adding all the
M = imports expenditures of the country s output.
Prepared by VAISHNAVI RAMPARE 1
,ECONOMICS O LEVEL (2281) – SUMMARY NOTES (GRADE 11)
Whatsapp / Tel: +230 57883457
Nominal GDP Real GDP
It refers to GDP at current market prices and not It refers to GDP at constant prices and adjusted for
adjusted for inflation, giving a misleading inflation.
impression of what is happening to the output. Real GDP = nominal GDP 100
Current year price index
Real GDP per head = real GDP
population
Causes of economic growth
1. Increase in aggregate 2. An increase in quantity of 3. An increase in quality of
demand resources resources
Reasons for increase in AD Net investment rises Improvement in
Increase in consumer Labour force rises education
confidence Training and advances in
Cut in income tax technology
Advantages of economic growth Disadvantages of economic growth
1. Creation of jobs 1. External costs
Firms expand output – employ more Expand output – pollution/ congestion/
employees – income rises – purchasing depletion of non renewable resources/
power rises – standard of living rises destruction of wildlife.
2. Raise government revenue 2. Inflation
Income tax rises – government revenue Creation of jobs – income rises – AD rises –
rises – give subsidies – supply of the firms demand pull inflation
rises – revenue rises – profits rises – 3. Social impact
corporate tax rises – government spend on Longer hours of work
merit goods Stress causing health problems
3. Encourage investment 4. In the long run there may be structural
firms are more optimistic to start up their unemployment
business 5. Worsen current account
4. Reduce absolute poverty Income rises – import rises
5. Improve current account in balance of
payment
Output rises – exports rises
More locally produced goods – imports
reduces
6. Reduce external costs
Build roads – reduce traffic jams
Prepared by VAISHNAVI RAMPARE 2
, ECONOMICS O LEVEL (2281) – SUMMARY NOTES (GRADE 11)
Whatsapp / Tel: +230 57883457
Inflation
It is the continuous rise in the general price level accompanied by a fall in the value of money.
Cost of living rises while standard of living reduces.
Real wages: purchasing power of money wages. It reflects the amount of money in terms of
what it can buy.
Retail price index: A statistical index used to measure the rate of change in the price of 2 set of related
goods over a period of one year.
How is RPI calculated?
1. Choose a base year – a year is chosen as base year and the index is given as 100 ( base
year = a year with no cyclone or political instability)
2. Select a basket of goods – a family expenditure survey is carried out where they choose
a basket of sample goods and services which the households consumes the most.
3. Collect a price list from various retail outlets
4. Attached weights - % of consumption or income spent
5. Calculate inflation rate - current CPI – original CPI 100
Original CPI
Uses of CPI Causes of inflation
1. To measure cost of living 1. Demand pull inflation
It occurs to an excess of demand at full
2. To measure % change in price level employment.
AD = C + I + G + X – M
3. Help government in setting targets and Solution: use contractionary fiscal policy
designing policies Use contractionary monetary policy
4. To increase pensions 2. Cost push inflation
It occurs due to a rise in cost of production
5. To compare inflation rate with other where firms pass on the cost to consumers.
countries to maintain its price
competitiveness 3. Imported inflation
Price abroad rises – import the goods – local
price rises.
4. Monetary inflation
Government increases money supply to pay
debts – money supply rises faster than output
Prepared by VAISHNAVI RAMPARE 3
