Measure performance → identify the spending or cost shock → use AD–AS → assess policy and time lags.
Measures
Separate output, prices, employment and external balances. 1
Demand and supply
Trace spending components or costs to the relevant curve, then read output and price level. 2 · 3 · 4
Income and growth
Separate multiplier effects and recovery from growth in productive capacity. 5 · 6
Demand management
Follow fiscal or monetary policy through a transmission channel. 7 · 8
Productive capacity
Explain how a policy relaxes a resource or productivity constraint. 9
Essential formulas and conditions
AD = C + I + G + (X − M).
Inflation (%) = (CPI now − CPI a year ago) / CPI a year ago × 100.
k = 1 / (MPS + MPT + MPM); ΔY = k × initial injection.
Output gap (%) = (actual − potential output) / potential output × 100.
Key diagrams
AD shift p. 12 | Keynesian AS p. 49 | Circular flow p. 65 | Output gaps p. 71 | Monetary transmission p. 86
Read a diagram: identify the cause → trace the change → read the result → state the condition that could change it.
Notation: Y = real output; PL = price level; Yfe or Y* = potential/full-employment output. MPC means marginal propensity to consume here; in Unit 1 externalities it means marginal private cost.
Revision route: formula index p. 99 · diagram index p. 101 · key distinctions p. 102