Unit Overview
Macroeconomics
IB Economics SLΒ· 5 min read π 30% of overall IB Economics SL exam
1. Unit at a Glance
Macroeconomics examines big-picture issues that affect entire economies: rising prices, joblessness, slow growth, and inequality. It builds on microeconomic foundations to analyze how individual decisions aggregate to economy-wide outcomes, and how policymakers can address common macroeconomic problems.
The unit follows a logical learning sequence: we start by learning how to measure aggregate economic output, build the core AD-AS model to explain how the economy works, analyze key macroeconomic problems, evaluate different policy tools to address these problems, and end with a discussion of long-run economic growth.
Below are the 9 linked sub-topics of this unit, ordered for sequential learning:
Measuring economic activity
Learn to calculate GDP, distinguish nominal vs real GDP, and evaluate the limitations of GDP as a welfare measure.
β β β± 7 min
Aggregate demand
Break down the components of aggregate demand and explain factors that shift the AD curve.
β β β± 5 min
Aggregate supply
Distinguish between short-run and long-run aggregate supply and explain what causes shifts in AS.
β β β β± 6 min
Macroeconomic equilibrium
Explain short-run and long-run equilibrium and how economic shocks change output and price levels.
β β β β± 6 min
Unemployment and inflation
Analyze types, causes and consequences of unemployment and inflation, including the Phillips curve.
β β β β± 8 min
Income distribution and equity
Examine measures of income inequality and the government's role in promoting more equitable outcomes.
β β β± 6 min
Fiscal and monetary policy
Explore how governments and central banks use demand-side policies to meet macroeconomic objectives.
β β β β β± 9 min
Supply-side policies
Evaluate different supply-side policies designed to increase an economy's potential output.
β β β β± 7 min
Economic growth
Explain the sources of long-run economic growth and key costs and benefits of growth.
β β β± 6 min
2. Common Pitfalls
Wrong move:
Confusing short-run and long-run aggregate supply when analyzing policy impacts
Why:
This leads to incorrect predictions about how policy affects output and prices in the long run, costing exam marks
Correct move:
Always label whether you are working with short-run (sticky wages/prices) or long-run (fully flexible prices) AS when answering questions
Wrong move:
Mixing up fiscal and monetary policy tools and governing bodies
Why:
IB exam questions regularly test classification of policies, so mislabeling leads to avoidable lost marks
Correct move:
Remember: Fiscal policy (taxes/spending) is set by governments; Monetary policy (interest rates/money supply) is set by central banks
Wrong move:
Treating GDP as a perfect measure of living standards
Why:
Most evaluation questions on GDP expect recognition of its limitations to earn full marks
Correct move:
Always mention key limitations (unpaid work, inequality, externalities) when evaluating GDP as a welfare measure
3. Quick Reference Cheatsheet
Key Concept / Formula | Core Use |
|---|---|
Expenditure method calculation of gross domestic product | |
Real GDP = | Adjust nominal output for inflation to compare output across time |
AD = | Total aggregate demand for all goods and services in an economy |
SRAS: upward sloping; LRAS: vertical at potential output | Core AS shapes reflecting sticky vs fully flexible prices/wages |
Unemployment Rate = | Standard measure of economy-wide unemployment |
Inflation Rate = | Percentage change in the average price level over time |
Lorenz Curve / Gini Coefficient | Standard tools to measure the degree of income inequality in an economy |
Expansionary policy β shifts AD right; Contractionary β shifts AD left | Core rule for demand-side policy impacts in the AD-AS model |
Long-run economic growth β shifts LRAS rightward | Growth of potential output is represented as a right shift in long-run aggregate supply |
What's Next
Begin your sequential learning of this unit with the first sub-topic on measuring economic activity, which builds the foundational vocabulary and metrics you will use for all subsequent macroeconomic models and analysis. Once you complete all sub-topics in this unit, you will move on to the next unit covering international economics, which builds on the macroeconomic fundamentals you learn here.