4.2.1.2 macroeconomic indicators Flashcards
what are macroeconomic indicators?
how government’s measure the achievement of those aims
eg) GDP, CPI etc
what is the Gross Domestic Product?
- the value of goods and services produced in the economy over a period of time
- a key measure of the health of an economy / measure of the economy’s national income
what is the definition of real GDP? (real value)
what’s the definition of nominal GDP? (nominal value)
REAL VALUE
- the value of goods and services produced in the economy over a period of time taking into account inflation
NOMINAL VALUE
- doesn’t take into account the effect of inflation
how do you calculate GDP?
measured in three ways:
- national income
- national expenditure
- national output
- one person’s expenditure is another’s income
what is real GDP per capita?
and how do we calculate it?
- used to make comparisons between countries in terms of the standard of living in each country
- per capita = a variable adjusted to give an average amount per person
- real GDP per capita (measured in £) =
real total GDP (in £) / population level
define:
- GDP by volume
- GDP by value?
volume - the quantity of goods and services produced in a country
value - the monetary worth of the goods and services produced in a country
what is inflation?
- the rate of change in the average price level over time
OR
- the sustained increase in the cost of living / fall in the purchasing power of money
- inflation of 2% (+/- 1% for financial stability)
in the UK, two main measures of the price level are used to record the rate of inflation
what are these?
- consumer price index (CPI) -> the official measure used to calculate inflation, forms the Bank of England Target
- retail price index (RPI)
- both measures include the prices of goods and services typically bought by UK households
what is Consumer Price Index (CPI)?
- measures household purchasing power with the Family Expenditure Survey
-> the survey finds out what consumers spend their income on
-> from this a basket of goods is created - the goods are weighted according to how much income is spent on each item
- each year is updated to account for changes in spending patterns
how do you go about working out the consumer price index?
- base year selected and a family expenditure survey is carried out to work out average spending habits
- representative basket of goods is used which is reviewed each year to reflect consumer spending patterns
- weights are attached to each item based on their importance in people’s spending
what is the retail price index?
- more inclusive than CPI
-> includes housing costs like mortgage interest repayments and council tax - tends to be above the CPI
- excludes top and bottom 4% of the population as they’re not representative of the average household
- discredited as a measure now because mortgage payments distort the figure -> been replaced by CPIH
what’s the difference between CPI and CPIH?
- adds owner-occupier housing costs and council task to CPI
- otherwise calculated in the same way and with the same basket as CPI
- has been published since 2013
- but ONS has calculated it back to 2006
in the UK there are 2 main measures of unemployment
what are these?
1) the claimant count
- the number of ppl receiving welfare benefits for unemployment
- the usual benefit received is jobseeker’s allowance (JSA)
2) The Labour Force Survey (LFS)
- based on a monthly sample of people
- records those who report they’re looking for work but cannot find it
- regardless of whether they receive benefits or not
- this info is used to produce an estimate of the national unemployment level
what is the rate of unemployment?
- rate of unemployment is usually seen as more significant than the level of unemployment (expressed as a number)
- unemployment rate is the no. of people expressed a s a % of the current labour force
unemployment rate (%) = number of ppl unemployed / size of labour force x 100
what does it been to be economically inactive?
- those of working age who aren’t in work and not actively seeking work
eg) still in education / those raising families / those incapable of working / those who have retired early
what is the relationship between LFS and the claimant count?
- the LFS is normally higher than the claimant count measure
- it includes those receiving benefits as well as those who don’t qualify for / choose not to claim benefits
what is:
-productivity
-labour productivity
-capital productivity?
productivity = a measure of efficiency comparing the level of output with the level of inputs
labour productivity = output of the workforce compared with the amount of labour used to produce the output
capital productivity = output per item of capital equipment measured over a period of time
what is the balance of payments?
a record of a country’s trade/transactions with the rest of the world
- between consumers, firms and the government from one country with other countries
- states how much is spent on imports, and what the value of exports is
there are three sections of the Balance of Payments
what are these?
1) the current account
- trade in goods
- trade in services
- investment income
- transfers
2) the financial account
3) the capital account
- transactions in financial assets
- investment flows
- government transactions
what is the current account?
what does it relate to?
- part of the balance of payments that looks at the net income flows earned through either trade in goods and services or the reward from investments located overseas
- relates to foreign trade, ie:
-> exports of goods and services (produced in the UK but sold to foreigners)
-> imports of goods and services (produced overseas but purchased by the UK population)
what is a current account deficit?
- where the flows of money from trade and other incomes out of the country are greater than the equivalent flows into the country
what’s the difference between exports and imports?
- net exports (exports minus imports) is referred to as the balance of trade
value of exports greater than value of imports = trade surplus
value of exports less than value of imports = trade deficit
what’s the trade of services like in the UK?
- measures the net exports (X-M) of invisible items
- UK has traditionally run a large surplus on the trade in services component of the current account
1) shift away from primary and secondary sectors towards tertiary sector employment
- therefore specialising in the provision of services
2) specialisation has meant that the UK is more competitive in the provision of these services
- can offer better services at lower cost
3) london has developed as one of the world’s prime financial centres
- become a major source of income and wealth generation in the UK
what is the balance of trade like in the UK?
- the UK normally has a surplus on the balance of trade for services but a deficit on the balance of trade for goods
1) increase in the demand for consumer goods
-> many of which have been imported
2) decline in the UK manufacturing sector
-> secondary production is outsourced to low wage economies
3) lower production of primary materials such as gas and oil
- overall, the UK normally has a current account defecit
-> government want balance to move closer towards a current account surplus / small but stable deficit
what is investment income?
- generated by UK owned overseas assets
eg) a UK firm might own a company abroad, or generate income from overseas investments - profits and dividends that are received are sent back to the UK, and count as a credit item of investment income on the current account
- debit items also occur as foreign investments into the UK may yield profits which are sent back to the country of investment origin
what are transfers?
- payments made (or received), usually by the government, to or from other countries
Main transfers
- Foreign Aid
given its status in the European and global economy, the UK typically runs a deficit on the transfers section of the current account
define:
- short-run growth
- long-run growth
short-run growth
- the actual annual percentage change in real national output
long-run growth
- an increase in the potential productive capacity of the economy
what does long- run economic growth come from?
- improvements in productivity
- these improvements in productivity come from making workers more efficient in producing output
- and improving the efficiency of the economy’s capital equipment (machines etc)
what are macroeconomic policies?
tools Government uses to achieve those aims
