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103 cards · 24 topics · Edexcel A Theme 2: The UK Economy - Performance and Policies
Define GDP, and distinguish actual from potential growth.
Gross Domestic Product — the total monetary value of all final goods and services produced within a country's borders in a given year: the primary measure of economic activity.
Actual growth is a rise in real GDP — producing more than last year. Potential growth is a rise in productive capacity — what the economy could produce at full employment.
State the expenditure approach to measuring GDP.
Consumption + Investment + Government spending + Net exports. The income approach — summing wages, rent, interest and profit — must reach the same total, because every pound spent is a pound of income for someone.
Show demand-pull inflation on an AD/AS diagram.
Aggregate demand shifts right (AD1 to AD2) — from rising consumer spending, investment, government spending or net exports — while SRAS is unchanged. The equilibrium moves up the SRAS curve: the price level rises from PL1 to PL2 as output rises from Y1 to Y2.
Prices are pulled up by excess demand, which is why demand-pull inflation strengthens as the economy nears full capacity.
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