ECON102: Principles of Macroeconomics Study Guide (South Africa Focus)

ECON102: Principles of Macroeconomics introduces you to how economies behave as a whole—output, inflation, unemployment, interest rates, exchange rates, and government policy. This study guide is built for South African university, college, and TVET contexts, with examples aligned to features you’re likely to encounter in local assessments: measurement of inflation using South African CPI concepts, the role of fiscal policy under budget constraints, and the practical importance of exchange rates and capital flows. Use it to consolidate theory, learn how to answer common exam questions, and apply macro frameworks to real-world South African-style scenarios.

Section 1: Macroeconomic Measurement, Key Identities, and Economic Data in South Africa

Macroeconomics starts with measurement. Before you can interpret inflation trends, output changes, or unemployment movements, you must understand how those variables are defined and calculated, and how economic data are constructed and reported.

Core Macroeconomic Aggregates: GDP, Output, and the Circular Flow

Gross Domestic Product (GDP) measures the market value of final goods and services produced within a country’s borders over a period (usually a year or quarter). In introductory macro, GDP is central because it connects to national income, employment, and productivity.

You will typically encounter three equivalent ways to compute GDP:

Expenditure approach
[
GDP = C + I + G + (X – M)
]
where:
- C = household consumption expenditure
- I = investment (fixed capital formation and inventory changes)
- G = government spending on goods and services
- (X − M) = net exports (exports minus imports)
Income approach
GDP relates to wages, profits, rents, and taxes minus subsidies, plus depreciation adjustments in more detailed treatments.
Production (value-added) approach
Sum the value added by all production units across the economy.

Exam-style interpretation

A common exam question is to ask how GDP changes if:

households increase consumption (C rises),
firms cut investment (I falls),
government reduces public spending (G falls),
exports decline or imports rise (net exports worsen).

A high-scoring answer explicitly links the change in the variable to the formula and then explains the likely macroeconomic mechanism (e.g., lower investment can reduce future capacity and employment).

Nominal vs Real GDP: Inflation and Price Indices

Nominal GDP values production using current prices. Real GDP adjusts for inflation to reflect changes in real output.

To convert nominal to real GDP you use a price index (such as a CPI or GDP deflator, depending on context). Intro macro often focuses on the intuition:

If nominal GDP grows faster than real GDP, prices are rising.
If real GDP falls while nominal grows, inflation may be masking a real contraction.

South Africa relevance

In South Africa, inflation is a central policy and household concern, and assessment questions often ask about how inflation affects purchasing power, wage negotiations, and consumption.

A typical pattern in macro exam scenarios:

Consumption demand falls in real terms when inflation erodes real incomes.
Real wage adjustments may lag nominal wage changes, causing a short-run decline in living standards.

Unemployment, Labour Force, and Employment Measures

Unemployment is not just “people without jobs.” Intro macro usually defines it using labour force concepts:

Labour force = employed + unemployed
Unemployment rate = unemployed / labour force × 100%

Key exam points:

Someone not actively seeking work is generally not counted as unemployed under standard definitions (depending on the precise survey method used in the course).
Changes in unemployment can reflect both job creation and labour force participation changes.

Short-run and long-run unemployment

Intro macro often introduces distinctions:

Frictional unemployment: searching and matching workers to jobs
Structural unemployment: mismatch between skills/locations and available jobs
Cyclical unemployment: driven by business cycle downturns

South African contexts often include structural constraints—such as skills mismatches and sectoral shifts—which can make unemployment persistent even when output stabilizes.

The Balance of Payments Intuition (High-level macro link)

Even in ECON102, you may touch on why exchange rates and external balances matter. A simplified link:

Imports (M) increase when domestic demand rises or the currency appreciates
Exports (X) respond to foreign demand and competitiveness, including exchange rate movements

If an exam question asks why net exports improve, your answer should consider both sides:

exports may rise due to global demand,
imports may fall due to a weaker currency or reduced domestic spending.

The National Accounts Identity: Disposable Income and Savings

A crucial identity often used in coursework:

National income links to consumption, saving, and taxes/transfers.
In basic models: Y = C + S for a simplified setting.
With government and taxes: disposable income affects consumption capacity.

Worked micro-to-macro bridge example

Suppose:

Household income (Y) rises by 5%
Propensity to consume is 0.8 (so households spend 80% of additional income)

Then consumption increases by 4% while saving increases by 1%. In an exam answer, you can state that higher saving may reduce consumption but can fund investment if financial markets allocate savings efficiently.

Policy Relevance of Measurement Errors

Macro policy decisions depend on data accuracy. In the real world, measurement issues occur:

revisions to GDP after initial estimates,
seasonal adjustments for labour data,
sampling errors in surveys.

A strong exam response acknowledges that policy reactions should consider:

whether a shock is temporary or persistent,
whether inflation is driven by demand or supply factors,
whether unemployment movements reflect actual job losses or labour force changes.

Counter-argument to memorized answers

Some students memorize “inflation rises → real wages fall” without caveats. A more precise answer:

Real wages depend on both nominal wage growth and inflation.
If wages adjust quickly enough, real wages may not fall as much.
In economies with strong union bargaining, inflation can lead to nominal wage increases; the net effect depends on the speed of adjustment and wage negotiation outcomes.

Section 2: Aggregate Demand, Aggregate Supply, and Macroeconomic Equilibrium

This section builds the heart of introductory macro models: aggregate demand (AD) and aggregate supply (AS), and how equilibrium output and prices are determined.

Aggregate Demand (AD): What Shifts It?

Aggregate demand is the total spending on domestically produced goods and services at different price levels.

In many ECON102 courses, AD is derived from the basic expenditure identity:
[
Y = C + I + G + (X-M)
]
But AD’s link to price levels comes through several channels:

Wealth effect: higher prices reduce real wealth → less consumption (C falls)
Real interest rate: inflation expectations can influence real borrowing costs → changes in investment (I)
Exchange rate effect: price level changes can affect competitiveness → changes in exports (X) and imports (M)
Balance-sheet channels: in more advanced introductions, financing conditions depend on inflation/credit

Shifters of AD (what to memorize)

C increases (e.g., higher consumer confidence, tax cuts that raise disposable income)
I increases (lower interest rates, improved business expectations)
G increases (more government purchases)
X − M increases (stronger foreign demand, more competitiveness, or policy changes affecting trade)

Price level increases can reduce real spending; therefore AD slopes downward in many basic graphical representations.

The Short-Run Aggregate Supply (SRAS) Concept

In the short run:

Firms adjust output more easily than prices (sticky wages/prices assumption is typical).
SRAS is influenced by production costs and capacity constraints.

Common SRAS determinants:

labour costs (wages),
input prices (especially energy and imported inputs),
productivity and technology (can shift supply),
inflation expectations (in “expectations-augmented” versions).

Key exam skill: describing effects on output vs prices

When SRAS shifts:

Output changes immediately in the short run.
Prices adjust depending on whether demand and supply move relative to each other.

A high-quality answer uses equilibrium logic:

Identify which curve shifts (AD vs SRAS vs LRAS)
Determine direction of price change (up/down)
Determine direction of output change (expansion/recession)

Long-Run Aggregate Supply (LRAS) and Potential Output

Long-run aggregate supply is often represented as vertical at potential output (full employment output). The idea:

In the long run, wages and prices adjust to align output with resource constraints, technology, and productivity.

Why potential output matters

Potential output sets the baseline for:

inflation trends,
sustainable growth,
the concept of output gaps (actual output minus potential).

If AD expands persistently while SRAS cannot immediately adjust, the economy can experience:

higher inflation in the short run,
eventually output returns to potential (in the long run) with prices rising.

Equilibrium Scenarios (Detailed)

Below are exam-ready scenario templates you can adapt.

Scenario A: AD increases (demand expansion)

Assume:

consumer confidence increases,
interest rates fall,
government increases spending.

Graphically:

AD shifts right.
Short-run equilibrium moves to higher output and higher prices (if SRAS upward sloping).

In a written answer:

In the short run, output rises because firms meet higher demand.
Costs and prices rise as demand increases and resources tighten.
In the long run, output returns toward potential, while inflation persists.

Scenario B: SRAS decreases (cost-push shock)

Assume:

imported fuel costs rise due to exchange rate depreciation,
electricity price increases or supply disruptions raise production costs.

Graphically:

SRAS shifts left.
Equilibrium output falls and prices rise: stagflation-like outcome (in the broad intuition).

In South African exam-style problems, cost shocks are relevant due to:

currency and energy/import sensitivity,
supply constraints,
disruptions in key inputs.

Scenario C: AD decreases (demand contraction)

Assume:

households reduce spending due to higher borrowing costs,
government cuts spending,
global recession reduces exports.

Graphically:

AD shifts left.
Output falls and prices tend to fall in short run.

Written answer emphasis:

Lower output reduces unemployment pressure (and in severe cases increases unemployment).
Disinflation may occur if the economy has excess capacity.

Output Gaps, Inflation, and Policy Trade-offs

In policy discussions, output gaps matter:

When actual output is above potential, demand pressures inflation upward.
When actual output is below potential, inflation tends to slow as resources are underused.

A key exam nuance:

You must not claim output returns immediately to potential; it’s a long-run result.
In the short run, stickiness (wages/prices) allows output deviations.

Counter-argument: “Inflation will always fall when AD falls”

Not necessarily in reality:

If inflation is driven by supply shocks (e.g., energy prices), reducing demand might not reduce inflation quickly.
That is why AD-AS models often need to account for both demand and supply disturbances.

The Accelerator Intuition: Investment’s Role in AD

Investment responds to expected profitability and sales:

When firms anticipate higher demand, they invest to expand capacity.
Investment is volatile, making AD shifts larger.

For exam writing, link:

output increases → expectations improve → investment increases → further AD expansion (multiplier-accelerator logic).

Section 3: The IS–LM Framework (Funds Market & Money Market) and the Interest Rate Mechanism in Macroeconomics

ECON102 may introduce the IS–LM model as a framework to understand how equilibrium income (Y) and interest rates (i) are determined through:

IS curve: equilibrium in the goods market (investment depends on interest rate)
LM curve: equilibrium in the money market (money supply/demand depends on income and interest rates)

Even if your course focuses more on AD–AS, IS–LM often strengthens your understanding of interest rate policy and monetary transmission.

Goods Market Equilibrium (IS Curve)

The IS curve summarizes combinations of:

output (Y) and
interest rate (i)

where planned spending equals output.

A typical simplified logic:

Higher interest rates reduce borrowing and investment → lower planned spending → lower equilibrium output.
So:
IS is downward sloping in the (Y, i) plane.

Macro interpretation

In a recession:

policymakers may want to lower interest rates to stimulate investment.
if the interest rate channel works, IS shifts right or the economy moves down along IS.

Money Market Equilibrium (LM Curve)

Money market equilibrium relates:

real money supply (M/P) to
real money demand, which increases with income and decreases with interest rates (opportunity cost of holding money).

So:

LM is upward sloping.

Institutional intuition for South Africa-like contexts:

When income rises, transactions demand for money rises.
When interest rates rise, holding money is less attractive compared with interest-bearing assets, so money demand falls.

Policy Tools and Transmission

IS–LM helps interpret:

monetary policy (shifting LM),
fiscal policy (shifting IS),
and combined policy effects.

Monetary expansion

If central bank increases money supply:

LM shifts right (more money available at each interest rate).
Equilibrium moves to lower interest rate and higher output (initially).

Key counterpoint: in reality, the transmission might be weaker if:

banks are cautious in lending,
firms face credit constraints,
or inflation expectations differ.

Fiscal expansion

If government increases spending (G) or cuts taxes (increasing disposable income):

IS shifts right.
Output rises; interest rates rise too due to higher money demand / tighter money market equilibrium.

This is the classic crowding out intuition:

Higher interest rates may reduce private investment (I).
The net effect on output depends on the interest sensitivity and the magnitude of monetary conditions.

Worked Numerical Example (Conceptual IS–LM Style)

Suppose a simplified IS equation in a lesson uses a form like:
[
Y = A – b i
]
and LM:
[
i = \frac{1}{c}(Y – d)
]
While ECON102 often doesn’t require exact algebraic solving with real parameters, exams may ask you to interpret the direction of changes.

You can still do a consistent “directional” analysis:

Fiscal expansion shifts IS right → Y up, i up
Monetary expansion shifts LM right → Y up, i down
Combined policies: could strongly increase output while stabilizing interest rates, depending on relative shifts.

Liquidity Preference and Interest Rate Determination

Money demand depends on:

transactions motive (income),
speculative motive (interest rates).

A deeper exam answer explains:

When interest rates are high, people prefer interest-bearing assets over money.
When interest rates fall, the opportunity cost of holding money declines.

In a scenario where interest rates are already low:

additional monetary expansion may have a smaller effect on stimulating output because money demand becomes less sensitive.
This “liquidity trap” idea is sometimes included in course notes.

Exchange Rate Link (Open Economy extension—if covered)

Some ECON102 curricula include a short extension:

In open economies, interest rates affect capital flows and exchange rates.
Exchange rates affect net exports and therefore AD and IS.

A coherent chain:

Monetary easing lowers domestic interest rates.
Capital outflows may occur (depending on relative returns).
Currency may depreciate.
Net exports improve (X − M increases), raising output.

But you must be careful about inflation:

depreciation can raise import prices → inflation.
Inflation may affect real interest rates and thus the equilibrium.

Counter-argument: depreciation may harm net exports if imports are essential

In many economies, imports are crucial intermediate goods (fuel, machinery, chemicals). If depreciation raises costs sharply:

firms’ production can become more expensive,
SRAS may shift left,
leading to ambiguous output effects despite higher net exports.

This is a strong way to show deeper understanding in exam essays.

Summary of IS–LM Exam Writing Moves

When answering questions, structure your answer like:

Identify the shock/policy (fiscal or monetary)
Identify which curve shifts (IS or LM)
Predict direction of interest rate change
Predict direction of output change
Mention second-order effects (e.g., crowding out, exchange rate/inflation, credit constraints)

This systematic approach increases the odds of earning method marks even if your exact graph is imperfect.

Section 4: Fiscal and Monetary Policy, Multipliers, and Stabilization Challenges

A core purpose of macro is explaining how governments and central banks stabilize the economy. This section links:

fiscal policy (G, taxes, transfers),
monetary policy (money supply, interest rates),
to:
multipliers and
real-world complications.

Fiscal Policy: Government Spending and Taxation

Fiscal policy uses government spending and taxation to influence aggregate demand.

Key instruments:

changes in G (government purchases),
changes in taxes (T),
automatic stabilizers (tax revenue and transfers respond to the business cycle).

Spending multiplier intuition

When government increases spending by ΔG, total spending rises further through consumption responses.

If consumption depends on disposable income:

disposable income rises by ΔG (in simplified models, via income identity),
households consume part of it,
that consumption becomes income for others, and so on.

The simplified multiplier:
[
k = \frac{1}{1 – MPC}
]
where MPC is the marginal propensity to consume.

Example with consistent numbers:
If MPC = 0.8, then:
[
k = \frac{1}{1 – 0.8} = \frac{1}{0.2} = 5
]
So, a $1 billion increase in G could increase equilibrium output by up to $5 billion in the simplest model (with caveats).

Caveats that examiners like

Leakages: saving instead of spending reduces multiplier size.
Imports: some spending goes to imports, reducing the domestic multiplier.
Capacity constraints: if the economy is near full employment, output may be limited and inflation may rise instead.

For South Africa-related contexts, imports can matter because consumption and production often rely on imported inputs. That can reduce the domestic multiplier relative to a closed-economy textbook version.

Taxes and the Tax Multiplier

Taxes affect disposable income and therefore consumption. If taxes rise by ΔT, consumption falls by MPC × ΔT, reducing output.

The tax multiplier has the opposite sign of the spending multiplier and typically a smaller absolute value than spending multiplier in simple models:

spending affects income directly,
taxes affect income through disposable income and consumption.

Exam question pattern:

If government uses tax cuts to stimulate demand, output rises, but the magnitude depends on MPC and timing.

Monetary Policy: Central Bank Objectives and Tools

In macro, monetary policy aims to influence:

inflation,
output/employment stabilization (often secondary or conditional),
exchange rate and financial stability (in some setups).

Tools:

policy interest rates (repo rate or similar)
reserve requirements (in some models)
open market operations (buying/selling securities)
forward guidance (in more modern curricula)

Interest rate transmission channels

Explain how a policy rate change affects the real economy:

Policy rate changes bank funding costs
Lending rates adjust
Borrowing and investment decisions respond
Consumption of durable goods may change
Aggregate demand changes
Output and inflation adjust

Stabilization Policy Under Real-World Constraints

The ideal macro model assumes quick implementation and predictable effects. Real economies face constraints:

Time lags
- Recognition lag: policy makers need time to identify the shock.
- Administrative lag: drafting, approval, and implementation take time.
- Impact lag: consumption and investment adjust gradually.
Policy uncertainty
If firms and households doubt policy persistence, they may postpone investment/consumption.
Credibility and expectations
- If inflation expectations are anchored, policy affects output more reliably.
- If expectations are unanchored, changes in policy rates may lead to weaker real effects.

Case-style scenario (non-numeric but exam-ready)

Imagine inflation is high and rising due to supply shocks. If policymakers cut interest rates rapidly:

AD might increase, but inflation could worsen.
The economy may face a SRAS-left condition causing both lower output and higher prices.
A strong exam answer states:
demand management may not solve supply-driven inflation,
policy must consider the source of inflation.

Multipliers Revisited: When Are They Large or Small?

Multipliers depend on:

MPC (higher MPC → larger multiplier),
the marginal propensity to import (higher imports → smaller domestic multiplier),
the interest rate response (in open economy and IS–LM, higher rates may crowd out I),
the degree of price flexibility (if prices adjust quickly, real output effects may be muted).

Counter-argument: “Fiscal stimulus always works”

Fiscal stimulus may be ineffective or counterproductive if:

the economy is already at potential output and additional spending raises inflation more than output,
debt sustainability concerns restrict future spending capacity,
crowding out is strong due to tight monetary conditions.

Interaction of Fiscal and Monetary Policy

A major learning outcome is to show you can reason about mixed strategies:

If fiscal expands (IS right) and monetary does not respond, interest rates may rise and crowd out investment.
If monetary accommodates (LM shifts right), interest rates may not rise as much, reducing crowding out.

In exam essays, the highest marks come from combining:

AD–AS logic (prices and output),
IS–LM logic (interest rates),
and a realistic critique (lags, expectations, credit conditions).

Section 5: Growth, Inflation, Unemployment Dynamics, and Policy Trade-offs (with South African-Like Application Themes)

In the final section, you connect the macro tools to the outcomes that matter most in exams: economic growth, inflation, and unemployment, and the policy trade-offs between stabilizing prices and supporting jobs.

Economic Growth: Sources and Constraints

Economic growth refers to sustained increases in real output over time. Intro macro often emphasizes:

Capital accumulation (more machines, infrastructure)
Labour force growth and human capital (skills, education, productivity)
Productivity and technology (efficiency improvements)

A coherent exam framework: Growth requires

investment to build capacity,
stable macro conditions (inflation control, exchange rate stability),
and productivity improvements.

Counter-argument: growth can be inflationary if constrained

If the economy grows by demand expansion but lacks productivity gains, inflation can rise due to supply constraints. In that sense:

short-run demand stimulus and long-run growth are related but not identical.

Inflation: Demand-Pull vs Cost-Push

Inflation explanations in ECON102 usually include:

demand-pull inflation: too much AD relative to AS
cost-push inflation: higher costs shift SRAS left

In exam answers:

demand-pull tends to increase both output and prices initially (depending on time horizon),
cost-push tends to reduce output while increasing prices.

South Africa relevance theme (conceptual)

Supply shocks can be triggered by:

energy price changes,
exchange rate depreciation (imported inflation),
wage costs and productivity mismatches,
supply chain disruptions.

A high-scoring essay links:

exchange rate pressures → import costs rise → SRAS shifts left → inflation rises with output pressure.

Unemployment and the Phillips Curve Intuition

Even if the Phillips curve isn’t fully formalized, ECON102 commonly discusses an inflation–unemployment trade-off:

in the short run, lower unemployment may coincide with higher inflation,
in the long run, unemployment may return to a “natural rate,” making the trade-off weaker or absent.

To score well, incorporate:

expectations: if inflation expectations rise, the economy can move to a higher inflation rate without lasting unemployment reduction.
supply shocks: inflation can rise even when unemployment rises (contradicting simplistic trade-off assumptions).

Counter-argument: “Low unemployment always means high inflation”

Not always. If productivity rises:

unemployment might fall without large inflation increases.
Or if inflation is driven by supply shocks:
inflation may rise even with rising unemployment.

Output and Employment: Linking Macro Models to Labour Markets

To connect models:

AD and SRAS determine output.
Output determines labour demand.
Labour market conditions feed into wage dynamics and inflation persistence.

A structured explanation:

AD increases → output increases → firms hire more (unemployment falls)
If output exceeds potential, wages and prices rise → inflation accelerates
If supply costs rise (SRAS falls) → output declines → hiring slows or unemployment rises, while inflation rises

Policy Trade-offs: Stabilization vs Structural Reform

A common exam expectation: stabilization policy is short-run; structural policy affects long-run outcomes.

Stabilization policy (macro)

reduces cyclical unemployment,
targets inflation,
smooths business cycles.

Structural policy (longer-term)

improves productivity through skills and infrastructure,
encourages investment and innovation,
reduces labour market frictions.

An exam answer should highlight:

Stabilization can’t fully solve long-run unemployment if unemployment is structural.
Inflation can’t be controlled indefinitely with demand suppression if supply constraints remain.

Case-Study Style Essay Framework (South Africa-Oriented Themes)

Use a consistent narrative structure when given a scenario:

Step 1: Identify the shock

Examples of shocks that appear in macro tests:

higher import costs due to currency depreciation,
higher oil/fuel prices,
fiscal stimulus or budget cuts,
changes in central bank policy rate,
changes in consumer confidence.

Step 2: Map to model shift

cost shock → SRAS left,
demand stimulus → AD right,
monetary expansion → LM right (IS–LM),
fiscal expansion → IS right (IS–LM).

Step 3: Predict output and inflation direction

AD right + SRAS stable → output up, prices up
SRAS left + AD stable → output down, prices up
fiscal up (IS right) + no accommodation → interest rate up, investment can crowd out, output effect may weaken
monetary accommodation → reduces interest-rate rise, strengthens output effect.

Step 4: Consider policy limits and second-order effects

time lags,
expectation effects,
import leakage,
debt and credibility constraints,
financial sector transmission strength.

Step 5: Conclude with policy recommendation logic

If inflation is supply-driven, focus on supply constraints and targeted stabilization rather than only demand suppression.
If unemployment is cyclical, counter-cyclical fiscal/monetary support can help.
If growth is slow due to productivity issues, structural reforms are necessary alongside macro stability.

Bringing It Together: Integrated Master Summary

To perform extremely well in ECON102 exams, you need an integrated mental map:

Measurement tells you what happened
GDP, inflation, unemployment, labour force conditions.
AD–AS tells you why output and prices move
- AD changes spending,
- SRAS changes costs and production,
- LRAS anchors potential output.
IS–LM tells you the interest rate mechanism
- fiscal shifts IS,
- monetary shifts LM,
- interest rates link money market and investment.
Policy multipliers tell you magnitude and timing
- depends on MPC, imports, interest response, and slack.
Growth and unemployment require both stabilization and structure
- stabilization improves the cycle,
- structural reform improves potential output and employment quality.

Appendix: High-Scoring Exam Question Templates (Practice-Ready)

Template 1: “Explain the effects of an increase in government spending”

Use AD–AS:

Government spending increases → AD shifts right.
Short run: output rises, price level rises (depending on SRAS slope).
Long run: output returns to potential output, prices remain higher.
Mention financing and crowding out (if interest rates rise, investment may fall).

Use IS–LM (if required):

IS shifts right; interest rates rise; if monetary doesn’t accommodate, investment can crowd out → dampens output effect.

Template 2: “Effects of a cost-push shock”

Input costs rise (e.g., imported energy costs, wage costs) → SRAS shifts left.
Output falls; price level rises.
Unemployment rises because labour demand falls.
Counter-argument: if policymakers expand demand, they might worsen inflation; supply-side interventions are critical.

Template 3: “Discuss policy trade-offs between inflation and unemployment”

Short run: possible trade-off (via Phillips curve intuition).
Long run: returns toward natural/unemployment baseline when expectations adjust.
Supply shocks break naive trade-off logic: inflation can rise even as unemployment rises.

Template 4: “Compare fiscal vs monetary policy effectiveness”

Fiscal: strong on AD, but may crowd out investment via higher interest rates.
Monetary: strong via interest rate channel, but depends on financial transmission and inflation expectations.
Policy choice depends on shock type (demand vs supply), time lags, and credibility.

Consistent Terminology Checklist (Use in Answers)

To avoid losing marks through imprecise wording, use consistent terms:

AD = aggregate demand (total spending)
SRAS = short-run aggregate supply (cost/price stickiness)
LRAS = long-run aggregate supply (potential output anchor)
Output (Y) = real GDP or real economic activity level
Price level (P) = general price level reflecting inflation
Unemployment rate = unemployed / labour force × 100%
MPC = marginal propensity to consume (fraction of extra income spent)

Final Consolidation: What to Review on the Night Before ECON102

GDP formula and interpretation: C + I + G + (X − M)
Nominal vs real GDP: inflation adjustment logic
Unemployment definitions: labour force, unemployment rate mechanics
AD–AS graphs: identify which curve shifts and direction of output/prices
IS–LM: fiscal → IS right; monetary → LM right; interest rate mechanism and crowding out
Multipliers: MPC, imports leakages, and why effects depend on slack and financing
Inflation causes: demand-pull vs cost-push; how supply shocks change unemployment-inflation relationship
Policy trade-offs: stabilization vs structural reform; expectations and time lags

This completes the ECON102: Principles of Macroeconomics Study Guide designed to support mastery of the models and reasoning examiners expect—especially through scenario-driven explanations and structured, model-consistent answers aligned to South African teaching and assessment contexts.