Macroeconomic Issues
H2 Economics - syllabus 9570, 2026
Explain the main macroeconomic problems: weak or unbalanced growth, unemployment, inflation, deflation and trade imbalances, and their effects on living standards.
- Actual and potential growth
Actual growth is a rise in real output; potential growth is a rise in the economy's capacity to produce.
- Low or negative growth
Growth can be weak because demand is too low, because supply is held back, or both.
- Sustainable growth
Growth is sustainable if it can continue without running down the environment and resources future generations need.
- Inclusive growth
Growth is inclusive when its benefits reach most people, not just some groups.
- Demand-deficient unemployment
When AD falls, firms need fewer workers, so unemployment rises: this is demand-deficient (cyclical) unemployment.
- Structural unemployment
Structural unemployment happens when workers' skills or locations no longer match the jobs available.
- Frictional unemployment
Frictional unemployment is the short period people spend between jobs while they search.
- Why unemployment matters
Unemployment costs households income, the economy lost output and the government tax revenue.
- Inflation, disinflation and deflation
Inflation is rising prices, disinflation is prices rising more slowly, and deflation is falling prices.
- Demand-pull inflation
When AD grows faster than the economy can produce, prices are pulled up.
- Cost-push inflation
When firms' costs rise across the economy, they raise prices: this is cost-push inflation.
- Who gains and loses from inflation
Inflation hurts people on fixed incomes and savers, and can help borrowers; high inflation also harms competitiveness.
- Deflation
Deflation from weak demand is harmful; deflation from rising productivity can be benign.
- A persistent trade deficit
A persistent trade deficit can signal weak competitiveness, but it can also reflect imports of equipment that raise future output.
- A persistent trade surplus
A trade surplus can reflect strong exports, but a growing surplus can also signal weak domestic spending.
- Diagnosing the economy
Use the evidence to find the cause of a problem, because the cause decides the right policy.
- Model essay (a): demand-pull and cost-push inflation
A top 10-mark answer, written in about 20 minutes, explains each cause with a full chain and shows both on an AD/AS diagram, with real examples.
- Model essay (b): is deflation worse than inflation?
A top 15-mark answer, written in about 30 minutes, weighs the costs of each, and judges by the cause, the rate and how expectations respond.
- Case study practice: low prices and jobless graduates
A whole H2 case study: 30 marks, about 75 minutes in the exam. Answer every part, then compare with the suggested answers.
What you will be able to do
I can explain the causes of weak growth, unemployment, inflation or deflation and a large trade imbalance.
Syllabus 9570, 3.2.2(a). Macroeconomic Issues: Macroeconomic issues and their causes; Undesirable economic growth - persistently low or negative, unsustainable, non-inclusive due to factors such as changes in AD or AS, environmental degradation, inequitable income distribution; Unemployment - demand-deficient, structural, frictional due to factors such as lack of AD, technological changes, mismatch of skills, transition between jobs; Price instability - demand-pull inflation, cost-push inflation, deflation due to factors such as changes in AD, costs of production, productive capacity; Persistently large balance of trade deficit or surplus due to factors such as changes in global conditions, international competitiveness, exchange rates
Taught in Actual and potential growth, Low or negative growth, Sustainable growth, Inclusive growth, Demand-deficient unemployment, Structural unemployment, Frictional unemployment, Inflation, disinflation and deflation, Demand-pull inflation, Cost-push inflation, Deflation, A persistent trade deficit, A persistent trade surplus, Model essay (a): demand-pull and cost-push inflation, Case study practice: low prices and jobless graduates
I can explain how these macroeconomic problems hurt households, firms and governments.
Syllabus 9570, 3.2.2(b). Macroeconomic Issues: Consequences of undesirable economic growth, unemployment, price instability, persistently large balance of trade deficit or surplus for economic agents on the standard of living
Taught in Why unemployment matters, Who gains and loses from inflation, Deflation, Diagnosing the economy, Model essay (b): is deflation worse than inflation?, Case study practice: low prices and jobless graduates
Original teaching notes