4.2.1 measuring macro performance Flashcards
4 main macroeconomic objectives
economic growth
price stability
low unemployment
stable balance of payments
what is gdp
total value of goods and services produced within a country in a year
economic growth is
the rate if change of output
calculate economic growth
difference in gdp/old gdp x 100
what is real gdp
gdp accounting for inflation
what is gdp per capita
gdp divided by population
what is purchasing power parity
exchange rate of one currency for another which compares how much a typical basket of goods costs in one area compared to another
real example of calculating PPP
big mac index
4 limitations of gdp
doesnt account for hidden economy
doesnt account for unpaid/cash paid labour
doesnt reflect quality
ignores inequality
fishers equation
M(money supply) X V(velocity of money) = P(price level) X T(transactions)
who publishes cpi
office for national statistics
what does cpi measure
average change moth to month in the prices of goods and services purchased by most uk households
what if CPI is more than 1% above or below 2%
BoE governer will write to the chancellor of the exchequer to discuss monetary policy
what is the RPI
same as CPI but includes housing prices such as mortgages and council tax, does not cover ALL households
formula for RPI/CPI
new figure/base figure x 100
3 limitations of CPI
not totally representative of costs
doesnt include housing
new measure so difficult to make LT comparisons
2 measures of unemployment
claimant count (number of people caliming benefits)
labour force survey (questionairre given to a sample)
issues with measures of unemployment (2)
may not claim benefits
may work for hidden economy
confliciting objectives 5
inflation v unemployment
inflation v growth
growth v BoP
growth v budget
growth v environment
what are index numbers
used to make comparisons between years, base year is used and others afre compared to this
index of Y2
Y2/Y1 x 100
index of Y1
100
what are weighted indexes
reflect spending patterns
more representtative
used by HDI and price index
4 issues with national income data
gdp does not illustrate distribution of income thus gdp per capita cannot accurately represent living standards
gdp alone doesnt account for purchasing power
hidden economies such as black markets are hard to account fot in gdp
gdp gives no indication of happiness/welfare
