4.2.1 The measurement of macroeconomic performance Flashcards
What is a macroeconomic objective?
goals govt would like to achieve for macroeconomy
Economic policies?
Tools and methods used to influence the macroeconomy
Main macroeconomic policy objectives?
-Economic growth
-Price stability
-Minimising unemployment
-Stable bop on CA
-Balancing the budget
-Equitable distribution of income
Govt budget?
Value of govt spending compared with money earned by govt through tax over a period of time.a
Conflicts in achieving these objectives (policy conflicts)
-Policy conflict: attempts to achieve one economic objective move us further away from another economic objective
e.g the conflict between minimising unemployment and achieving price stability.
policy conflicts may only last short term some argue in long term can achieve objectives at same time with no policy objectives. This is open to debate.
Importance of economic objectives
The objectives are not always treated as equally important.
Policies change as circumstances change.
some also become less important over time
achieving a stable ca balance is no longer considered as important as t was up until the 1970s.
Macroeconomic indicators definition
A statistic used to represent the achievement of a macroeconomic objective.
Each indicator focuses on an economic variable that measures economic performance.
Gross domestic product (GDP)
A measure of the economies national income. GDP is the value of all incomes earned in an economy over a period of time.
Real GDP
Measures GDP after removing effect of inflation.
This ensures that any increase in GDP represents increased output of goods and services rather than just increases in prices.
Real variables are those adjusted for changes in the level of prices adjusting real GDP national incomes for changes in average price.
National income?
The total income generated within an economy over a period of time.
Real GDP per capita
Real GDP is used to make comparisons between countries in terms of the standard of living in each country. To make these more meaningful average income per person if often used.
real GDP per capita (£) = real total GDP £ /population level
Per capita
A variable adjusted to give an average amount per person.
price stability/Price level
Another government objective is to achieve price stability - where the average level of prices is reasonably stable. Increases in the price level overtime is referred to as inflation.
-Price level: the average level of prices of a range of goods and services at a point on time (measured monthly)
Inflation
An increase in the average level of prices measured over a period of time. The govt has a target rate of inflation of 2%. It allows a margin error of 1%.
Inflation rate
The percentage change in the price level measured over the period of one year.
