4.2.1.2 macroeconomic indicators

Question 1

what are macroeconomic indicators?

Answer 1

how government’s measure the achievement of those aims
eg) GDP, CPI etc

Question 2

what is the Gross Domestic Product?

Answer 2

• 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

Question 3

what is the definition of real GDP? (real value)
what’s the definition of nominal GDP? (nominal value)

Answer 3

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

Question 4

how do you calculate GDP?

Answer 4

measured in three ways:
- national income
- national expenditure
- national output

• one person’s expenditure is another’s income

Question 5

what is real GDP per capita?
and how do we calculate it?

Answer 5

• 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

Question 6

define:
- GDP by volume
- GDP by value?

Answer 6

volume - the quantity of goods and services produced in a country

value - the monetary worth of the goods and services produced in a country

Question 7

what is inflation?

Answer 7

• 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)

Question 8

in the UK, two main measures of the price level are used to record the rate of inflation
what are these?

Answer 8

• 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

Question 9

what is Consumer Price Index (CPI)?

Answer 9

• 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

Question 10

how do you go about working out the consumer price index?

Answer 10

• 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

Question 11

what is the retail price index?

Answer 11

• 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

Question 12

what’s the difference between CPI and CPIH?

Answer 12

• 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

Question 13

in the UK there are 2 main measures of unemployment
what are these?

Answer 13

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

Question 14

what is the rate of unemployment?

Answer 14

• 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

Question 15

what does it been to be economically inactive?

Answer 15

• 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

Question 16

what is the relationship between LFS and the claimant count?

Answer 16

• 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

Question 17

what is:
-productivity
-labour productivity
-capital productivity?

Answer 17

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

Question 18

what is the balance of payments?

Answer 18

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

Question 19

there are three sections of the Balance of Payments
what are these?

Answer 19

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

Question 20

what is the current account?

what does it relate to?

Answer 20

• 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)

Question 21

what is a current account deficit?

Answer 21

• where the flows of money from trade and other incomes out of the country are greater than the equivalent flows into the country

Question 22

what’s the difference between exports and imports?

Answer 22

• 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

Question 23

what’s the trade of services like in the UK?

Answer 23

• 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

Question 24

what is the balance of trade like in the UK?

Answer 24

• 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

Question 25

what is investment income?

Answer 25

• 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

Question 26

what are transfers?

Answer 26

• 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

Question 27

define:
- short-run growth
- long-run growth

Answer 27

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

Question 28

what does long- run economic growth come from?

Answer 28

• 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)

Question 29

what are macroeconomic policies?

Answer 29

tools Government uses to achieve those aims