IBDP Economics Chapter 8 Notes

the level of overall economic activity


These notes have specially been curated by expert teachers to simplify and enlighten concepts given in IB The Level of Overall Economic Activity HL. The notes are comprehensive in nature and are sufficient to study the chapter in depth and one need not look for other resources beyond the notes provided on our website which can be accessed for free. The notes for The Level of Overall Economic Activity IBDP HL are available on our official website and can be downloaded for free. The material made available on Tychr’s website is available for all IBDP subjects and is specially curated after an extensive amount of effort to ensure that the notes are in consonance with the IB curriculum and are an amalgamation from various textbooks prescribed by the IBO.

In this chapter of the level of overall economic activity we study about the circular flow of income. The simplest circular flow of income is the one where there is a closed economy and there is no government or international trade. It is a flow chart with factor market, households, products market and business. The income flow is equal to the expenditure flow in this diagram. To study in depth we introduce leakages and injections in the circular flow of income like savings, investment, imports exports. In this chapter we also study how to calculate the national income. The first method we will study in this chapter is expenditure method where the gross domestic product is the sum of consumption, investments, government spending, net exports.

The second method is the income approach where all the income earned by the factors of production like wages interest rent and profit within a country over a period of time are added together to calculate the total national income. The third method is the output approach where the value of each of the goods and services produced in the economy over a period of time are added together to calculate the national income; it includes only final goods and services to prevent double counting. It is very important for the students to understand the difference between different measures of value of output, real and nominal, total and per capita and gross and net. For becoming responsible citizens of the country it is very important for the students to learn about the green GDP. Lastly in the chapter we study about the business cycle and the trends in it.