3.2.1 The measurement of macroeconomic performance Flashcards
What are the main objectives of government macroeconomic policy?
(1) Trade
(2) Inflation
(3) Growth of the economy
(4) Employment rates
(5) Redistribution of income
(6) Stability of price
What are the 2 main measurements used for inflation?
Consumer Price Index (CPI): measure of inflation in the UK. Some items are excluded from CPI such as mortgage interest payments and council tax and a larger sample of the population is used
Retail Price Index (RPI): Living costs and food survey - what proportion of income people spend their money on and what
Basket of goods: Measures the change in price of around 700 of the most commonly used goods / services - average household spending
What are some limitations of CPI and RPI?
(1) RPI excludes households in the top 4% of income.
(2) CPI covers a larger range of the population but doesn’t include mortgage interest payments or council tax
(3) Information given can be inaccurate
(4) Basket of goods only changes once every year so ST changes in spending aren’t accounted
How are CPI and RPI used in government policy?
They help determine wages, state benefits and measure changes in the UK’s international competitiveness
Define inflation
Increase in the average price of goods and services over a period of time and the fall in the purchasing power of money
Define positive, negative / de , hyper and dis inflation
Positive: average price of goods / services are rising
Negative / de: average price of goods / services are falling
Hyper: Prices rise extremely quickly of money rapidly loses its value
Dis: Rate of inflation is slowing down
Define purchasing power parity (PPP)
The real value of an amount of money in terms of what you can actually buy with it
You can use it to compare living standards with other countries
What are some limitations of using GDP for comparison?
(1)extent of the hidden economy - economic activity that isn’t in official figures
(2) Public spending - some countries may offer more which improves the standard of living
(3) Income inequality - redistribution of income
(4) different standard of living such as spending needs in hot and cold countries - heating
How are index numbers calculated and interpretated
Useful to make comparisons over a period of time such as price level
Base year - first year (index number =100)
Changes are expressed as numbers below / above 100
Define unemployment
Number of people who are looking for a job but cannot find one as a percentage of the labor force
What are the 2 measures of unemployment?
The claimant count: Number of people claiming unemployment related benefits - job seekers allowance
The labor force survey: International labor organization uses a sample of the population to ask who aren’t working if they’re actively seeking for work - those who say yes are added up to produce the ILO unemployment count
What are the advantages and disadvantages of the claimant count?
adv: data is easy to obtain - no cost and updated monthly so it’s always current
disadv: can be manipulated to make it seem smaller e.g. changing school leaving age and excused those who aren’t eligible for the JSA
What are the advantages and disadvantages of the labor force survey?
adv: more accurate and internationally agreed measure of unemployment so easy to make comparisons
disadv: less up to date, expensive to collect data and sample may be unrepresentative of the population as a whole making the data inaccurate
What are the costs of unemployment?
(1) high unemployment rates suggests a bad economy
(2) unemployment leads to lower incomes and spending - companies sell less goods and cut prices leading to less profit
(3) Unused labor in the economy - fewer goods / services produced
(4) Gov have extra costs such as welfare benefits and less revenue as less tax is paid
What does the balance of payments record?
The flow of money by value into and out of the country - imports and exports
