2.1 The measurement of macroeconomic performance Flashcards
Macroeconomics
involves the study of the whole economy at the aggregate level
Gross domestic product (GDP)
a measure of all the goods and services produced in a country over a period of time
Inflation
a continuous and persistent rise in the price level and a fall in the value of money
Unemployment
occurs when people who are actively searching for employment are unable to find work
Balance of payments
a record of all the currency flows into and out of a country in a particular time period
Real
a prefix used in economics to indicate that the value has been adjusted for inflation (changes in price over time)
Nominal
a prefix used in economics to indicate the value has not been adjusted for inflation (changes in prices over time)
Per capita
a suffix used in economics to indicate the figure has been divided by the size of the population to give an average per person
What are the four main objectives of UK economic policy?
- positive economic growth
- low and predictable inflation
- low levels of unemployment
- satisfactory balance of payments
Index number
a number used in an index, such as consumer prices index, to enable accurate comparisons over time to be made
Consumption
total planned spending by households on consumer goods and services produced within the economy
How do you calculate the index number for a given year?
(number in current year/ number in base year) x 100
How do you calculate the percentage change between the index points of two given years?
(change in index points/index number for original year) x 100
How do you calculate the real national income of a country in a particular year?
(current year nominal national income x base year price index)/current year price index
Consumer price index (CPI)
the official measure of inflation in the UK
What will happen to REAL national income if the percentage increase in price level is LESS than the percentage increase in NOMINAL national income?
it will increase
What will happen to REAL national income if the percentage increase in price level is EQUAL to the percentage increase in nominal national income?
it will stay the same
How do you calculate real national income per capita?
real national income/population
Economic development
the improvement of total economic welfare and quality of life within a country
Standard of living
the level of wealth, comfort, material goods, and necessities available in a country
UN Human Development Index (HDI)
an index based on life expectancy, education, and per capita income indicators. A higher HDI indicates a better quality of life.
Unpaid work
economic activity, such as domestic work of producing important goods and services such as meals and cleanliness of the home, of which the economic value is not included in national income statistics
Purchasing Power Parity (PPP)
the exchange rate needed for a quantity of money to buy the same quantity of goods in each country
Exchange rate (ER)
the external price of a currency, usually measured against another currency
Undervalued
when a currency has an exchange rate lower than its purchasing power parity
Overvalued
when a currency has an exchange rate higher than its purchasing power parity
Basket of goods
a representative sample of goods and services in an economy
The law of one price
in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices and prices can freely adjust), identical goods sold in different locations must sell for the same price when prices are expressed in a common currency
