Recommended Prior Knowledge
This Unit builds on the material covered in Unit 3, Macroeconomic Measurement and Inflation, in the Core curriculum.
Context
The material focuses on theory and measurement in the macroeconomy and then leads on in Unit 10 to the various macroeconomic problems and the different policies that can be adopted to try and overcome these problems.
Outline
The Unit begins by looking at the use of national income statistics and then goes on to consider different definitions of the money supply and the concept of the circular flow of income. It then considers the Keynesian and monetarist schools of thought on the economy and goes on to examine the aggregate expenditure function and aggregate demand and supply. Finally, it looks at the sources of money in an economy, the relationship between the money supply, the price level and output and the determination of interest rates.
AO a
Learning Outcomes
Candidates should have an understanding of national income statistics and there are four areas to focus on: i. The use of national income statistics as measures of economic growth and living standards. ii. Money and real data; the GDP deflator.
Suggested Teaching Activities
Students need to have a good understanding of the various terms; the first self-assessment task in Bamford (page 203) and question
2 in Anderton (page 157) is useful.
Students need to be aware of the possible impact of inflation on the value of money so that they are able to distinguish between the nominal and real value of an amount of money; they should find out the current
Learning Resources
Tutor2u:
Measuring National Income
Bized:
Economic Growth
Bized:
GDP and Standard of Living
Bamford, Chapter 11, pp 201-
209.
Anderton, Unit 25, pp 156-
163.
Gillespie, pp. 52-53 www.theallpapers.com

b
AO c
Learning Outcomes iii. The comparison of economic growth rates and living standards over time and between countries iv. Other indicators of living standards and economic development
Candidates should understand the meaning of the term money supply and be able to distinguish between broad and narrow definitions of the money supply.
They should also have an understanding of government accounts, including the government budget and deficit financing.
Candidates should understand the concept of the circular flow of income between households, firms, government and the international economy.
Suggested Teaching Activities rate of inflation in their own country and discuss the potential impact of this on the value of money.
The second self-assessment task in Bamford (page 203) is useful on the distinction between nominal and real values.
Students need to research these comparisons in their own country over a period of time and between various countries today. The case study in Stanlake (page 257) is a good example of a comparison over time.
The table in Bamford (page 204) and the data in Anderton (pages
162-163) are good on the comparison between countries.
Students should consider just how difficult it is to measure living standards; they should work in groups and discuss all the factors that would need to be taken into account before reporting back to the class
Bamford (page 209) has some interesting data using the Human
Development Index
Students need to appreciate the idea of different forms of money and of a liquidity spectrum; they should consider exactly what is meant by money in different circumstances and try and rank these in terms of liquidity.
Gillespie (page 68) has a very good explanation of the different measures of the money supply.
Students should try and find information on the government accounts in their own country and analyse these.
The data question in Anderton on Preparing a Budget (pages 239-
240) and the self-assessment task on a budget deficit in Bamford
(page 211) are very useful.
Students need to have a clear understanding of this concept; the diagrams in Bamford (page 212), Anderton (page 156), Stanlake
(pages 248-250) and Gillespie (page 54) are all very helpful.
They should discuss the concept, recognising the importance of the link between income and expenditure.
Learning Resources
Bized: GDP and International
Comparisons
IMF: Country Information
Stanlake, Chapter 26, pp
250-258
Bized: Measuring Poverty and Living Standards
Tutor2u: Measuring the
Money Supply
Bamford, Chapter 11, pp 209-
211
Anderton, Unit 36, pp 234-
240
Anderton, Unit 82, pp 552-
557
Stanlake, Chapter 7, pp 55
Stanlake, Chapter 33, pp
304-316
Gillespie, pages 64 and 68
Bized: The Circular Flow of
Income
Tutor2u: The Circular Flow and Spending
S-cool: The Circular Flow of
Income
Bamford, Chapter 11, pp 212
Anderton, Unit 25,pp 156-157
Stanlake, Ch. 26, pp 248-250
Gillespie, p 54. www.theallpapers.com

e
AO d
Learning Outcomes
Candidates should understand the differences between the Keynesian and monetarist schools of thought on how the macroeconomy functions.
Candidates should understand the meaning of the aggregate expenditure function (AE), its components and their determinants
Candidates should also understand the concept of income determination using the AE-income and the withdrawal/injection approaches.
Suggested Teaching Activities
Students should research the key features of the two approaches and the background to the development of these theories and then give a presentation on their findings, evaluating the strengths and weaknesses of each; it might also be a suitable topic for a debate, comparing and contrasting the two schools of thought.
There are useful summaries of the two approaches in Bamford
(page 212) and Gillespie (page 87).
Students need to have a good understanding of the necessary diagrams; Bamford (pages 215-218) and Gillespie (pages 84-86) are very helpful.
The self-assessment tasks on the Singapore economy in Bamford
(page 214) and the data response questions in Stanlake (page
282) are both useful.
Learning Resources
Bized: Introduction to
Keynesians
Bized: Introduction to
Monetarists
S-cool: Do Keynesians and
Monetarists Agree?
Bamford, Chapter 11, p 212
Stanlake, Chapter 25, pp
240-242
Gillespie, p 87
S-cool: The 45 Degree
Diagram
Bized: Consumption,
Investment and Growth
Tutor2u: Household Savings
Behaviour
Tutor2u: Inflationary Gaps
Tutor2u: Investment
Bamford, Chapter 11, pp 212-
219
Anderton, Units 35 and 36, pp
227-235
Stanlake, Chapter 27, pp
259-264
Stanlake, Chapter 29, pp
279-283
Stanlake, Chapter 52, pp
503-511
Gillespie, pp 60-62 and 84-
86. www.theallpapers.com

g f
AO Learning Outcomes
They should have an understanding of inflationary and deflationary gaps and be able to distinguish between the full employment level of income and the equilibrium level of income.
Candidates should also understand the concepts of the multiplier and the accelerator and be able to distinguish between autonomous and induced investment.
Candidates should understand the shape and determinants of aggregate demand (AD) and aggregate supply (AS)
They should also understand the significance of the interaction of AD and AS in terms of the determination of levels of output, prices and employment.
Candidates should understand the sources of money supply in an open economy (commercial banks/credit creation, central bank, deficit financing, total currency flow).
They should also have an understanding of the relationship between the money supply, the price level and output as explained by the Quantity
Theory of Money.
Suggested Teaching Activities
Students need to have a good grasp of how the multiplier works; the self-assessment task in Bamford (page 218), question 3 in
Anderton (page 215) and the examples in Stanlake (pages 503-
505) are all very useful. The accelerator also needs to be understood; question 4 in Anderton (page 208) and question 3 in
Anderton (page 522) are helpful.
Students need to have a good grasp of the diagrams; these are covered well in Bamford (pages 219-222) and Gillespie (pages 81-
83)
The self-assessment tasks in Bamford (pages 221 and 222) and the data question in Anderton (page 226) are very helpful.
Students should try and find information on the sources of money in their own country
They should also attempt to obtain data on the money supply and the rate of inflation in their own country over a period of time and see what conclusions can be drawn about their relationship.
The self-assessment task in Bamford (page 224) is very good on the link between changes in the money supply and changes in the rate of inflation.
Questions 1 (page 565) and 3 (page 566) in Anderton are very good in helping to explain the Quantity Theory of Money.
Learning Resources
Bized: The Multiplier Principle
Tutor2u: The National Income
Multiplier
Anderton, Unit 33, pp 214-
215.
S-cool: Aggregate Demand
S-cool: Aggregate Supply
Tutor2u: Aggregate Demand and Aggregate Supply
Bized: The AD and AS Model
Bamford, Chapter 11, pp 219-
222
Anderton, Units 33-35, pp
212-233
Stanlake, Chapter 22, pp
268-278
Gillespie, pp 81-83.
Tutor2u: The Quantity Theory of Money
Bamford, Chapter 11, pp 222-
223
Anderton, Units 84 and 85, pp
564-573
Stanlake, Chapter 34, pp
323-324
Stanlake, Chapter 66, pp
628-629
Gillespie, pp 67 and 74-7.
Tutor2u: The Quantity Theory of Money
Bamford, Ch. 11, pp 222-223
Anderton, Units 84 and 85, pp
564-573
Stanlake, Ch. 34, pp 323-324
Stanlake, Ch. 66, pp 628-629
Gillespie, pp 67 and 74-75 www.theallpapers.com

h
AO Learning Outcomes
Quantity Theory of Money
Candidates should understand the demand for money and the determination of interest rates, including both the Liquidity Preference and the
Loanable Funds theories.
Suggested Teaching Activities
There is also a useful discussion of the link between inflation and the money supply in the Applied Economics section in Anderton
(pages 567-568) and a helpful data question on housing and the money supply (pages 568-569).
Students should research the different rates of interest in their own country and try to explain why there can be such a diversity of rates rather than just one single rate.
They need to have a clear understanding of the diagrams;
Bamford (pages 224-226) and Gillespie (pages 69-72) are particularly helpful.
The self-assessment task on Japanese interest rates in Bamford
(page 226) and questions 1 (page 559) and 2 (page 560) in
Anderton are useful; the latter question, however, uses interest rates which refer to the UK financial market and so it might be better to construct and use a similar table of local figures.
Learning Resources
Tutor2u:The Demand for
Money
Tutor2u: Interest Rates and
Economic Activity
Bamford, Chapter 11, pp 224-
226
Anderton, Units 82 and 83, pp
555-563
Stanlake, Chapter 16, pp
149-160
Gillespie, pp 61 and 69-72 www.theallpapers.com