4.2.1.2_-_Macroeconomic_indicators

Question 1

List the data commonly used to measure the performance of an economy

Answer 1

Real GDP,
Real GDP per capita
Consumer Prices Index (CPI)
Retail Prices Index (RPI)

Question 2

What is real GDP?

Answer 2

Real GDP is the value of GDP adjusted for inflation. For example, if the economy grew by 4% since last year, but inflation was 2%, real economic growth was 2%.

Question 3

What is real GDP per capita?

Answer 3

The value of real GDP divided by the population of the country. Capita is another word for ‘head’, so it essentially measures the average output per person in an economy. This is useful for comparing the relative performance of countries.

Question 4

What are CPI and RPI used for in the UK economy?

Answer 4

CPI and RPI are the measures of inflation in the UK.

Question 5

What is CPI?

Answer 5

A measurement of household purchasing power. 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. Petrol has a higher weighting than tea, for example. Each year, the basket is updated to account for changes in spending patterns.

Question 6

What is RPI?

Answer 6

RPI is an alternative measure of inflation. Unlike CPI, RPI includes housing costs, such as payments on mortgage interest and council tax.
This is why RPI tends to have a higher value than CPI.

Question 7

What are the two main measurements of unemployment?

Answer 7

The Claimant Count
UK Labour Force Survey (LFS)

Question 8

What is The Claimant Count?

Answer 8

This counts the number of people claiming unemployment related benefits, such as Job Seeker’s Allowance (JSA).
They have to prove they are actively looking for work.

Question 9

What is Job Seekers Allowance (JSA)

Answer 9

An Unemployment benefit paid who are unemployed and actively seeking work.

Question 10

What types of people does the Labour force survey ask?

Answer 10

It directly asks people if they meet the following criteria:

• Been out of work for 4 weeks
• Able and willing to start working within 2 weeks
• Workers should be available for 1 hour per week. Part time unemployment is included.

Since the part-time unemployed are less likely to claim unemployment benefit, this method gives a higher unemployment figure than the Claimant Count.

Question 11

What is productivity defined as?

Answer 11

Output per worker per period of time, It measures how efficient production is

Question 12

When does productivity increase?

Answer 12

Productivity increases if more output can be produced with fewer units of input.

Question 13

what is an example of productivity being measured

Answer 13

Labour productivity is measured in the UK by output per hour. In the first quarter of 2015, it grew by 0.3%.

Question 14

What is the balance of payments?

Answer 14

The balance of payments (BOP) is a systematic record of all economic transactions between a country and the rest of the world over a certain period of time, typically a year. It provides an overview of a country’s international transactions by reflecting its inflows and outflows of goods, services, and financial assets.

Question 15

What are exports and how do they related to the BOP?

Answer 15

Exports are goods and services sold to foreign countries, and are positive in the balance of payments. This is because they are an inflow of money.

Question 16

What are imports and how do they related to the BOP?

Answer 16

Imports are goods and services bought from foreign countries, and they are negative on the balance of payments. They are an outflow of money.

Question 17

What is the balance of payments made up of?

Answer 17

• The current account
• The capital account
• The official financing account

// If a country has a deficit on the current account, it needs a surplus on the financial account

Question 18

What is the current account on the balance of payments

Answer 18

The balance of trade in goods and services.

Question 19

What does a balance of payments equilibrium mean?

Answer 19

A balance of payments equilibrium means the country can sustainably finance the current account, which is important for long term growth.

Question 20

What does the current account balance show?

Answer 20

The current account balance should theoretically be zero, which is impossible, so in reality, it will tell whether a country is in a surplus or deficit.

Question 21

What does the current account on the balance of payments measure?

Answer 21

The inflow and outflow of goods, services, investment incomes and transfer payments.

Question 22

What are the four main components of the current account?

Answer 22

1. Trade in goods (visible balance)
2. Trade in services (invisible balance), e.g. insurance and services
3. Investment income flows, e.g. dividends, interest and migrants remittances from abroad
4. Net transfers/ secondary income flows - e.g. International aid.

Question 23

What is the fiscal balance and how does it relate to borrowing?

Answer 23

The difference between government spending and taxation, if the fiscal balance is uneven/unbalanced, borrowing is needed

Question 24

What is nominal GDP?

Answer 24

GDP measured at current market prices, without removing the effects of inflation