(1) Chapter 6 - The measurement of macroeconomy performance Flashcards
What is MACROECONOMICS
The study of the whole economy at the aggregate level
What is a POLICY OBJECTIVE
A target that policy-makers wish to achieve
What are the main policy objectives
- Full employment/ low unemployment
- Economic growth and to improve standards of living
- Control inflation, price stability
- Satisfactory balance of payments
Define SHORT-RUN ECONOMIC GROWTH
Growth of real output from using idle resources
Define LONG-RUN ECONOMIC GROWTH
Increase in the economy’s potential level of output, outward shift of the economy’s PPF
What is GROSS DOMESTIC PRODUCT
The sum of all goods and services produced in the economy over a period of time
Define REAL GDP
The measure of all goods and services produced in an economy, adjusted for inflation
Define NOMINAL GDP
GDP measured at the current market prices, without removing the effects of inflation
What is the difference between REAL and NOMINAL GDP
Real GDP takes account of prices changes (inflation) whereas nominal does not
Define RECESSION
A fall in real GDP for 6 months or more
How much in % is FULL EMPLOYMENT
3% or less of the labour force
What is the CLAIMANT COUNT
A method of measuring unemployment from the people claiming unemployment benefits
What is the LABOUR FORCE SURVEY
A quarterly sample of households in the UK
Define INFLATION
Continuing rise in the average price level
Define DEFLATION
Continuing fall in the average price level
Define DISINFLATION
The rate of inflation is falling but still positive
What is the PRICE INDEX
An index number showing the extent to which a price (basket of prices) have changed over a period of time
What is the CONSUMER PRICES INDEX (CPI)
A measure of inflation. The average price increase of a basket of 700 different goods and services
What is the RETAIL PRICES INDEX (RPI)
Older way of measure inflation
Define INDEXATION
The automatic adjustment of items such as pensions to changes in price level through the use of a price index
Define BALANCE OF PAYMENTS
A record of all the currency flows into and out of a country
Define EXPORTS
Goods/services sold to other countries
Define IMPORTS
Goods/services bought from other countries
Define BALANCE OF TRADE
The difference between the money value of a country’s imports and its exports
What is a BALANCE OF TRADE DEFICIT
Imports > Exports
What is a BALANCE OF TRADE SURPLUS
Imports < Exports
What is a BALANCED BUDGET
When government spending equals government revenue (tax)
What is a BUDGET DEFICIT
When government spending is greater than the revenue
What is a POLICY CONFLICT
When two policy objectives cannot both be met at the same time
What are examples of POLICY CONFLICTS
Full employment and economic growth vs satisfactory of balance of payments
Full E and EG vs control of inflation
EG vs greater income equality
Current living standards vs future living standards
What is a PERFORMANCE INDICATOR
Provides information for judging the success/failure of a government policy
What are the main beliefs of Keynesian economists
Governments should manage the economy, mainly through fiscal policies, encouraging investment
What are the main beliefs of pro-free market economists
Dislike government intervention in the economy, believing free markets provide incentives to work harder
What are INDEX NUMBERS
A number used to simplify the changes of price making it easier to see the proportion of the changes. The base year is typically 100
