MACROECONOMICS TOPIC 3
Equilibrium levels of real GDP
The economy is in equilibrium when aggregate demand is equal
to aggregate supply.
In the short run, equilibrium occurs when aggregate demand is
equal to short run aggregate supply.
Short run economic growth is an increase in real GDP like an
increase in actual output and can be represented using either
an AD/ AS or a PPF diagram.
Short run economic growth can be caused by
o Changes in interest rates set by the central bank
o Fiscal policy
o Commodity prices
o Currency changes affect import and export demand
o Trading conditions in other countries
o Confidence of businesses and households
Long run economic growth/ potential growth is a sustained rise
in a country’s productive potential.
The main drivers of long run economic growth are higher
productivity and gains from innovation and rising real incomes
for households.
Long run economic growth can be caused by
, o Investment
o Productivity
o Labour supply
o Research and development
o Innovation
o Enterprise
Export led growth is where a significant part of the expansion
of real GDP, jobs and per capita incomes flow from the
successful exporting of goods and services from one country to
another.
Export led growth
o Generates foreign currency
o Creates jobs and raises per capita incomes
o Allows imports of key technologies/ materials
o Trade stimulates market competition
Advantages of export led growth are
o Exports of goods and services are an injection into the
circular flow of income leading to a rise in aggregate
demand and an expansion of output – this helps to raise
per capita incomes and reduce extreme poverty especially
in developing/ emerging economies
o Growing export sales provide revenues and profits for
businesses which can then feed through to an increase in
Equilibrium levels of real GDP
The economy is in equilibrium when aggregate demand is equal
to aggregate supply.
In the short run, equilibrium occurs when aggregate demand is
equal to short run aggregate supply.
Short run economic growth is an increase in real GDP like an
increase in actual output and can be represented using either
an AD/ AS or a PPF diagram.
Short run economic growth can be caused by
o Changes in interest rates set by the central bank
o Fiscal policy
o Commodity prices
o Currency changes affect import and export demand
o Trading conditions in other countries
o Confidence of businesses and households
Long run economic growth/ potential growth is a sustained rise
in a country’s productive potential.
The main drivers of long run economic growth are higher
productivity and gains from innovation and rising real incomes
for households.
Long run economic growth can be caused by
, o Investment
o Productivity
o Labour supply
o Research and development
o Innovation
o Enterprise
Export led growth is where a significant part of the expansion
of real GDP, jobs and per capita incomes flow from the
successful exporting of goods and services from one country to
another.
Export led growth
o Generates foreign currency
o Creates jobs and raises per capita incomes
o Allows imports of key technologies/ materials
o Trade stimulates market competition
Advantages of export led growth are
o Exports of goods and services are an injection into the
circular flow of income leading to a rise in aggregate
demand and an expansion of output – this helps to raise
per capita incomes and reduce extreme poverty especially
in developing/ emerging economies
o Growing export sales provide revenues and profits for
businesses which can then feed through to an increase in
