Definition of economic growth. Real Gross Domestic Product (GDP) and how it can be used to measure economic growth. GDP per head (capita). Meaning of recession and how a recession moves the economy within its PPC. How changes in total demand may increase the utilisation of resources and GDP – resulting in a movement from inside toward the PPC. How economic growth shifts the economy’s PPC to the right and is caused by changes in investment, technology, and the quantity and quality of the factors of production. The costs and benefits of economic growth in the context of different economies. The range of policies available to promote economic growth and how effective they might be.

Definition of inflation and deflation. Measurement of inflation and deflation using the Consumer Prices Index (CPI). Causes of inflation: demand-pull and cost-push. Causes of deflation: demand-side and supply-side. The consequences of inflation and deflation for consumers, workers, savers, lenders, firms and the economy as a whole. The range of policies available to control inflation and deflation and how effective they might be.

Economic growth, full employment/low unemployment, stable prices/low inflation, balance of payments stability, redistribution of income. Reasons behind the choice of aims and the criteria that governments set for each aim. Possible conflicts between aims: full employment versus stable prices; economic growth versus balance of payments stability; and full employment versus balance of payments stability.