Topic Tracker: Edexcel A level Economics (A) – Themes 2 and 4 (Macroeconomics)

Abbreviations: AS2 = AS Level Paper 2; AL2 = A Level Paper 2; AL3 = A Level Paper 3; the number refers to the year of examination

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2.1.1 Economic growth
a) Rates of change of real Gross Domestic Product
1a
(GDP) as a measure of economic growth
b) Distinction between:
6a 3b 2a 1b
• real and nominal

• total and per capita

• value and volume

c) Other national income measures:

1a 5a
• Gross National Income (GNI)
d) Comparison of rates of growth between
countries and over time
e) Understanding of Purchasing Power Parities
(PPPs) and the use of PPP-adjusted figures in 2a 2a 5c
international comparisons
f) The limitations of using GDP to compare living
6e 6c
standards between countries and over time
g) National happiness:
• UK national wellbeing
• the relationship between real incomes and
3b 6c 6c
subjective happiness

2.1.2 Inflation

a) Understanding of:
4a 1a 5a
• inflation

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• deflation 1b
• disinflation

b) The process of calculating the rate of inflation in

6c 1b
the UK using the Consumer Prices Index (CPI)
c) The limitations of CPI in measuring the rate of
inflation
d) The Retail Prices Index (RPI) as an alternative
measure of the rate of inflation
e) Causes of inflation:
• demand pull
6d 1c 6a 1b 1c
• cost push
• growth of the money supply
f) The effects of inflation on consumers, firms, the
6e 6g 6b 2e
government and workers
2.1.3 Employment and unemployment

a) Measures of unemployment:
• the claimant count
3ac 6a
• the International Labour Organisation (ILO)
and the UK Labour Force Survey
b) The distinction between unemployment and
2a
under-employment
c) The significance of changes in the rates of:
3a 2b
• employment
• unemployment

• inactivity

d) The causes of unemployment:

2b 6f 3b 1a 4bc
• structural unemployment

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• frictional unemployment
• seasonal unemployment
• demand deficiency and cyclical
unemployment
• real wage inflexibility
e) The significance of migration and skills for
6e
employment and unemployment
f) The effects of unemployment on consumers,
firms, workers, the government and society
2.1.4 Balance of Payments
a) Components of the balance of payments, with
particular reference to the current account, and 3b
the balance of trade in goods and services
b) Current account deficits and surpluses 4ab 3ab 3c
c) The relationship between current account
imbalances and other macroeconomic objectives
d) The interconnectedness of economies through
international trade
2.2.1 The characteristics of AD – note this topic is typically tested as part of general AD/AS analysis

a) Components of AD: C+I+G+(X-M) 4a 2a

b) The relative importance of the components of
AD
c) The AD curve
d) The distinction between a movement along, and
2c
a shift of, the AD curve
2.2.2 Consumption

a) Disposable income and its influence on

4a 6c
consumer spending

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b) An understanding of the relationship between
6c
savings and consumption
c) Other influences on consumer spending:
• interest rates
• consumer confidence 5a 5a 2c 2b

• wealth effects

2.2.3 Investment

a) Distinction between gross and net investment 6a

b) Influences on investment:
• the rate of economic growth
• business expectations and confidence
• Keynes and ‘animal spirits’
3a
• demand for exports 6c 6b
(ir)
• interest rates
• access to credit
• the influence of government and
regulations
2.2.4 Government expenditure

a) The main influences on government

expenditure:
• the trade cycle
• fiscal policy
2.2.5 Net trade

a) The main influences on the (net) trade balance:

6ab
• real income
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• exchange rates 6c 6b 4a

• state of the world economy

• degree of protectionism

• non-price factors

2.3.1 The characteristics of AS - note this topic is typically tested as part of general AD/AS analysis

a) The AS curve
b) The distinction between movement along, and a
2c
shift of, the AS curve
c) The relationship between short-run AS and long-
run AS
2.3.2 Short-run AS

a) Factors influencing short-run AS:

• changes in costs of raw materials and
energy 5b
• changes in exchange rates
• changes in tax rates
2.3.3 Long-run AS

a) Different shapes of the long-run AS curve:

2a
• Keynesian 5b
• Classical 2ab

b) Factors influencing long-run AS: 4c 4a

• technological advances

• changes in relative productivity 6e 2b

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• changes in education and skills 2e

• changes in government regulations

• demographic changes and migration

• competition policy

2.4.1 National income

a) The circular flow of income 1b

b) The distinction between income and wealth 5a

2.4.2 Injections and withdrawals

a) The impact of injections into, and withdrawals

1b 1a 1a 1b
from, the circular flow of income
2.4.3 Equilibrium real national output

a) The concept of equilibrium real national output

4b
b) The use of AD/AS diagrams to show how shifts in 4b 6d 4c 2b 2ab
6d
AD or
2.4.4 Multiplier

a) The multiplier ratio

b) The multiplier process 5a

c) Effects of the economy on the multiplier

d) Understanding of marginal propensities and

their effects on the multiplier:
• the marginal propensity to consume (MPC) 5b 6d 1c 2a
• the marginal propensity to save (MPS)
• the marginal propensity to tax (MPT)

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• the marginal propensity to import (MPM)

e) Calculations of the multiplier using the formulae

1/(1-MPC) and 1/MPW, where 5a 1b 2bc 2a 1b
MPW=MPS+MPT+MPM

f) The significance of the multiplier to shifts in AD 2b

2.5.1 Causes of growth

a) Factors which could cause economic growth 6d 6d

b) The distinction between actual and potential 6e
2c 2d
growth
c) The importance of international trade for
(export-led) economic growth
2.5.2 Output gaps

a) Distinction between actual growth rates and

long-term trends in growth rates
b) Understanding of positive and negative output
2c 5b
gaps and the difficulties of measurement
c) Use of an AD/AS diagram to illustrate an output
3c 2b 2a
gap (level of spare capacity) in an economy
2.5.3 Trade (business) cycle

a) Understanding of the trade (business) cycle 2c

b) Characteristics of a boom 4a

c) Characteristics of a recession 6g 2ab

2.5.4 The impact of economic growth

a) The benefits and costs of economic growth and

the impact on: 6b 6f 6e
• consumers

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• firms
• the government
• current and future living standards
2.6.1 Possible macroeconomic objectives

a) Economic growth
b) Low unemployment
c) Low and stable rate of inflation
d) Balance of payments equilibrium on current
6g 6d
account
e) Balanced government budget
f) Protection of the environment
g) Greater income equality
2.6.2 Demand side policies

General questions about demand side policies 6e 6f 6f 6e

a) Distinction between monetary and fiscal policy 4c

b) Monetary policy instruments:
4a 1b 1d 3b 2d
• interest rates
• asset purchases to increase the money
1a
supply (quantitative easing)
c) Fiscal policy instruments:
7 1e
• government spending and taxation
d) Distinction between government budget (fiscal)
5c 6a 4bc
deficit and surplus
e) Distinction between, and examples of, direct
4bc 4a
and indirect taxation

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f) Use of AD/AS diagrams to illustrate demand-side
4b
policies
g) The role of the Bank of England:
• the role and operation of the Bank of 3a
England's Monetary Policy Committee
h) Awareness of demand-side policies in the Great
Depression and the Global Financial Crisis of 2008
6g
• different interpretations
• policy responses in the US and UK
i) Strengths and weaknesses of demand-side
6f 6f 6f 1e 2d
policies
2.6.3 Supply side policies

General questions on SSPs 6e 6g 6e 1e 2e

a) Distinction between market-based and

4c 2c
interventionist methods
b) Market-based and interventionist policies:
• to increase incentives
• to promote competition
• to reform the labour market 2b 1e
• to improve skills and quality of the labour
force
• to improve infrastructure
c) Use of AD/AS diagrams to illustrate supply-side
2a 5a
policies
6e
d) Strengths and weaknesses of supply-side
policies

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2.6.4 Conflicts and trade-offs between objectives and policies

a) Potential conflicts and trade-offs between the

6g 6d 8
macroeconomic objectives

b) Short-run Phillips curve

c) Potential policy conflicts and trade-offs

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4.1.1 Globalisation

a) Characteristics of globalisation
b) Factors contributing to globalisation in the last
50 years 8
c) Impacts of globalisation and global companies
on individual countries, governments, producers 6c
and consumers, workers and the environment
4.1.2 Specialisation and trade

a) Absolute and comparative advantage (numerical 2c

and diagrammatic): assumptions and limitations 1b (abs
relating to the theory of comparative advantage )
b) Advantages and disadvantages of specialisation
and trade in an international context
4.1.3 Pattern of trade

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a) Factors influencing the pattern of trade between
countries and changes in trade flows between
countries:
• comparative advantage

• impact of emerging economies

• growth of trading blocs and bilateral

7
trading agreements

• changes in relative exchange rates

4.1.4 Terms of trade

a) Calculation of terms of trade

2a
b) Factors influencing a country's terms of trade

c) Impact of changes in a country's terms of trade

4.1.5 Trade blocs and the WTO

a) Types of trading blocs (regional trade

agreements and
• bilateral trade agreements):
• free trade areas
• customs unions
• common markets
• monetary unions: conditions necessary for
their success with particular reference to
the Eurozone

b) Costs and benefits of regional trade agreements 1a 6e

c) Role of the WTO in trade liberalisation

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d) Possible conflicts between regional trade
agreements and the WTO
4.1.6 Restrictions on free trade

General questions on restrictions 6d 7

a) Reasons for restrictions on free trade

b) Types of restrictions on trade:

• tariffs

• quotas

• subsidies to domestic producers

• non-tariff barriers
c) Impact of protectionist policies on consumers,
7
producers, governments, living standards, equality

4.1.7 Balance of payments

a) The components of the balance of payments:

2b
• the current account

• the capital and financial accounts

b) Causes of deficits and surpluses on the current
account
c) Measures to reduce a country's imbalance on
the current account
d) Significance of global trade imbalances

4.1.8 Exchange rates

a) Exchange rate systems:

• floating

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• fixed

• managed
b) Distinction between revaluation and
appreciation of a currency
3a
c) Distinction between devaluation and
depreciation of a currency
d) Factors influencing floating exchange rates 1a 1a
e) Government intervention in currency markets
through foreign currency transactions and the use
of interest rates
f) Competitive devaluation/depreciation and its
consequences
g) Impact of changes in exchange rates:
• the current account of the balance of
payments(reference to Marshall-Lerner
condition and J curve effect)
6c 8 6d 1b 3b 1d
• economic growth and
employment/unemployment
• rate of inflation
• foreign direct investment (FDI) flows

4.1.9 International competitiveness

a) Measures of international competitiveness:

3ab
• relative unit labour costs
• relative export prices

b) Factors influencing international

2b 2a
competitiveness

c) Significance of international competitiveness:

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• benefits of being internationally
competitive
• problems of being internationally
competitive
4.2.1 Absolute and relative poverty
a) Distinction between absolute poverty and
6a
relative poverty
b) Measures of absolute poverty and relative
poverty
c) Causes of changes in absolute poverty and
6b
relative poverty
4.2.2 Inequality
a) Distinction between wealth and income
inequality
b) Measurements of income inequality:
• the Lorenz curve (diagrammatic analysis) 6a
• the Gini coefficient 4b 5c
c) Causes of income and wealth inequality within
4a 5b 1b 8 6b
countries and between countries
d) Impact of economic change and development
on inequality
e) Significance of capitalism for inequality 6d

4.3.1 Measures of development

a) The three dimensions of the Human
Development Index (HDI) (education, health and
5a
living standards) and how they are measured and
combined
b) The advantages and limitations of using the HDI
to compare levels of development between 5b
countries and over time
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c) Other indicators of development

4.3.2 Factors influencing growth and development

2b
General questions on factors 2d
2d
a) Impact of economic factors in different
countries: 1c 6c
• primary product dependency
• volatility of commodity prices 2d

• savings gap: Harrod-Domar model

• foreign currency gap

• capital flight 3b

• demographic factors 6b 2b

• debt 2a

• access to credit and banking 6e

• infrastructure

• education/skills

• absence of property rights

b) Impact of non-economic factors in different

countries

4.3.3 Strategies influencing growth and development

General questions on strategies / policies 1d 6b 6e 2e

a) Market orientated strategies

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• trade liberalisation

• promotion of FDI

• removal of government subsidies

• floating exchange rate systems

• microfinance schemes 2c

• privatisation

b) Interventionist strategies:

• development of human capital

• protectionism 7

• managed exchange rates

• infrastructure development 1e
• promoting joint ventures with global
companies
• buffer stock schemes

c) Other strategies:

• industrialisation: the Lewis model 2a

• development of tourism

• development of primary industries

• Fairtrade schemes 6a

• aid 2c 6c

• debt relief

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d) Awareness of the role of international
institutions and non-government organisations
(NGOs):
• World Bank

• International Monetary Fund (IMF) 3a

• NGOs

4.4.1 Role of financial markets

General questions on the role of financial markets 6e 5a

a) To facilitate saving

b) To lend to businesses and individuals 5ab 1a

c) To facilitate the exchange of goods and services

d) To provide forward markets in currencies and

6a
commodities
e) To provide a market for equities

4.4.2 Market failure in the financial sector

General questions on market failure 6e 5b

a) Consideration of:
• asymmetric information
• externalities

• moral hazard

• speculation and market bubbles

• market rigging

4.4.3 Role of central banks

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a) Key functions of central banks
• implementation of monetary policy
• banker to the government
6e
• banker to the banks – lender of last resort

• role in regulation of the banking industry

4.5.1 Public expenditure

General questions on public expenditure 7

a) Distinction between capital expenditure, current

4b
expenditure and transfer payments
b) Reasons for the changing size and composition
of public expenditure in a global context
c) The significance of differing levels of public
expenditure as a proportion of GDP on:
• productivity and growth
• living standards
• crowding out
• level of taxation
• equality
4.5.2 Taxation

General questions on taxation 7 6d

a) Distinction between progressive, proportional

and regressive taxes
b) The economic effects of changes in direct and
indirect tax rates on other variables:

• incentives to work

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• tax revenues: the Laffer curve 4c

• income distribution

• real output and employment

• the price level

• the trade balance

• FDI flows

4.5.3 Public sector finances

a) Distinction between automatic stabilisers and

4b 4b
discretionary fiscal policy
b) Distinction between a fiscal deficit and the
2b
national debt
c) Distinction between structural and cyclical
deficits

d) Factors influencing the size of fiscal deficits

2b 1c
e) Factors influencing the size of national debts

f) The significance of the size of fiscal deficits and

8 2a
national debts
4.5.4 Macroeconomic policies in a global context

General questions on macro policies 6d

a) Use of fiscal policy, monetary policy, exchange

rate policy, supply-side policies and direct controls
2e 3ab
in different countries, with specific reference to
the impact of:

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• measures to reduce fiscal deficits and
national debts
• changes in interest rates and the supply of
6d 6c 7
money
b) Use and impact of macroeconomic policies to
respond to external shocks to the global economy
c) Measures to control global companies’
(transnationals’) operations:
• the regulation of transfer pricing
• limits to government ability to control
global companies
d) Problems facing policymakers when applying
policies:

• inaccurate information 6de

• risks and uncertainties

• inability to control external shocks

Note: any questions not referred to in the above Tracker are quantitative skills questions e.g., calculations for percentages, percentage changes, index numbers etc

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