What students need to learn:
Content
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Students should be able to:
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Additional Guidance Notes
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The components of AD:
C + I + G + (X — M)
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Understand the factors influencing the components of AD.
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Students should understand the relative importance of these
components, for example consumption comprises approximately 65 per cent of
AD.
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Consumption (C)
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Understand the main influences on consumer spending, for example:
interest rates; consumer confidence; wealth effects. Understand how changes
in house prices may affect consumer spending.
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Recognition of the importance of consumption as a component of AD
should be used as an evaluative tool.
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Investment (I)
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Understand the main influences on investment, for example: interest
rates; confidence levels; risk; the influence of government and regulations.
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The accelerator effect and Marginal Efficiency of Capital theory are
not required.
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Government
expenditure (G)
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Understand the main influences on government spending, for example
the deliberate manipulation of the economy through fiscal policy.
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Students should understand that the budget does not have to balance
in the short run, and be able to assess the impact of an imbalance on the
flow of income.
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Exports — Imports (X-M)
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Understand the impact on the current account of factors including:
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Evaluation of these influences is required, for example:
However:
Students are not expected to have knowledge of the Marshall-Lerner
condition or J-curve analysis.
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Movements along and shifts of the AD curve
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Understand why AD slopes downwards.
Show the relevant shifts in the AD curve when one of the components
change.
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Students should distinguish between levels of the components and the
changes in components. For example, falls in the rate of investment may mean
that AD rises more slowly.
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