1. The Measurement Of Macroeconomic Performance Flashcards
What is macroeconomics?
Refers to the economy as a whole, i.e. on a national or global scale
What are macroeconomic objectives?
A goal a government would like to achieve for the macroeconomy
What are economic policies?
The economic tools and instruments available for a government to use to influence economic performance
What is economic growth?
The change in national income measured over a period of time
What is the balance of payments?
The record of financial transactions between the UK and the rest of the world
What is the governments budget?
Refers to the value of spending compared with the money earned by the government through taxation over a period of time
What is distribution of income?
How evenly incomes are shared between individuals and households cross the economy
What is price stability?
How fast the average level of prices of a range of goods/services rises over a period of one year
What are the main government macroeconomic objectives?
- Economic growth
- Price stability
- Minimising unemployment
- Stable balance of payments on current account
- Balancing the budget
- Achieving an equitable distribution of income
What is policy conflict?
Attempts to achieve one economic objective move us further away from another economic objective
What is an example of policy conflicts?
Between minimising unemployments and achieving price stability
What is a macroeconomic indicator?
A statistic used to represent the achievement of a macroeconomic objective
What is gross domestic product?
The term used widely to represent national income of an economy
What is national income?
The total income generated within an economy over a period of time
What is real gross domestic product?
Real variables are those adjusted for changes in price level, adjusting real GDP national income for changes in average prices
What does per capita mean?
Average per person
What is price level?
The average level of prices of a range of goods and services at a point in time (monthly)
What is inflation?
An increase in the average level of prices measured over a period of time
What is inflation rate?
The percentage change in the price level measured over a year
What are the main measures of prices level for inflation in the UK?
- Consumer price index (CPI)
- Retail price index (RPI)
What is the labour force?
Those of working age who are in work or actively seeking it
What is the economically inactive?
Those of working age who are not in work or not actively seeking it
Who does the economically inactive include?
Those…
- In education
- Raising a family
- Incapable (sickness or incapacity)
- Retired early
What is unemployment?
Those of working age who are not in work but are actively seeking it
What is the claimant count?
Measure of unemployment that counts those who are receiving unemployment benefits
What are the two main measures of unemployment?
- The claimant count
- The labour force survey
What is unemployment rate?
Number of unemployed people expressed as a percentage of current labour force
What is productivity?
A measure of efficiency comparing levels of output with input
What is labour productivity?
Output of workforce compared with amount of labour (number of people/hours) to produce output
What is capital productivity?
Output per item of capital equipment measured over a period of time
Where does long-run economic growth come from?
Improvements in productivity
What is the balance of payments divided up into?
- Current account
- Capital account
- Financial account
What is the current account?
Part of the balance of payments that looks at the net income flows earned through either trade in goods/services or reward from investments overseas
What is current account deficit?
Where flows of money from trade and other incomes out of the country are greater than the equivalent flows into the country
What is a trade surplus?
Value of exports > value of imports
What is a trade deficit?
Value of exports < value of imports
What is an index number?
A number used to show the size of changes in a variable over time
When are index numbers used?
- Comparisons over a period of time
- Size of change in variables needs to be highlighted
What is the base year?
The starting number of an index number - 100
How is inflation rate calculated in the UK?
Through annual % change in the CPI - a number measuring average level of prices measured
What is a price index?
Average level of prices based on a selection of products bought by a typical household
What is the basket of goods/services?
Selection of products included within the price index based on typical household purchases
Is CPI a weighted price index?
Yes
What is a weighted price index?
Average level of prices adjusted so that price changes in popular items affect the price index more than price changes in infrequently bought items
Disadvantages of CPI?
- Based on an imaginary family - never reflects EVERYONES exact spending patterns
- Inflation ‘basket’ includes things not everyone buys (alcohol/cigarettes)
- No account for items quality
What does real GDP show?
What GDP can ‘buy’ after adjusting for changes in prices
What are the main uses for national income data?
- Determine economic growth
- Estimate likely tax revenues
- Estimate likely welfare expenditure (unemployment benefits)
- Assess inflationary pressures (national income found to rise rapidly)
What are limits of NI data?
- Distribution of income
- Composition of GDP
- Shadow economy
- Non-marketed output
- Negative externalities
- Non-financial factors
What is distribution of income?
- How income is shared matters
- A country with high income inequality will have more people significantly below average GDP per capita compared to a country with more equal income distribution
What is composition of GDP?
- How NI is generated matters
- In some countries military expenditure contributes to GDP, and creates some jobs but doesn’t add to living standards
What is the shadow economy?
Also known as underground economy - income from transactions that are legal but unrecorded/ illegal and unrecorded
- Unrecorded transactions add to living standards but don’t show up in GDP data
What is non-marketed output?
Some goods/services improve living standards but are not included in GDP data
What are non-financial factors?
Income contributes to living standards but other factors contribute to quality of life - quality of health care provisions, education provisions, leisure time
What is purchasing power parity?
The exchange rate that would equalise the price of goods and services in different counties once converted into the same currency
What is a disadvantage of PPP?
Assumes goods being compared are identical
What is national income?
Refers to the income of an economy earned by all the workers and businesses over a period of time
What is consumption?
Spending on goods/services by a household
What is investement?
Spending by businesses on additions to the capital stock (new premises/equipment)
What is government expenditure?
Spending by the government at both national and local levels within the economy
What are net exports?
The value of exports less the value of imports in an economy over a period of time
What 3 ways calculate national income?
- Expenditure method
- Income method
- Output method
What is the expenditure method?
Involved adding up all spending over a period of time
- Consumption (C)
- Investment (I)
- Government expenditure (G)
- Net exports (exports - imports (X - M))
What is the income method?
Involves adding up all income earned over a period of time:
- Wages and salaries
- Rent earned
- Interest earned by investing capital in financial assets
- Profits earned by trading goods/services
What is the output method?
Involves totalling the value of all output produced over a period of time up each sector of the economy
What is nominal national income?
National income unadjusted for changes in prices (also known as money income)
What is gross national income?
Income from overseas assets
What is real national income used for?
- Measures how successful an economy is
- Shows how well off population is
- Allows gov estimation for tax per person
What is the circular flow of income?
A model of the economy where income and spending flow between households and firms
What are injections?
Extra money placed into the circular flow of income
What are withdrawals?
Money taken out of the circular flow of income (leakages)
What are the three injections?
- Investement
- Government expenditure
- Exports
What are the three withdrawals?
- Savings
- Taxation
- Imports
What is macroeconomic equilibrium?
The level of national income where there is no tendency for the level to change
What happens when total injections is higher than total withdrawals?
National income has increased
