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MacroEconomics > 9 - Macroeconomic Performance > Flashcards

9 - Macroeconomic Performance Flashcards

1
Q

What are the objectives of government policy?

A

Economic Growth, Price Stability, Minimise Unemployment, Stable balance of payments.

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2
Q

What has happened to the UK’s GDP since 1949?

A

It has increased year on year.

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3
Q

What % of GDP growth is considered stable for an advanced economy?

A

2-3%.

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4
Q

In which years has GDP growth contracted, over the last 30 years?

A

1992, 2008, 2020.

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5
Q

What does the growth in GDP per capita mean for living standards?

A

It means the standard of living is higher than it used to be, and the poorest can afford more than they used to.

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6
Q

Why is GDP per capita not always accurate?

A

It doesn’t give the full picture of the proportion of wealth in a country.

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7
Q

What has happened to inflation since 2000?

A

It has remained mostly stable since 2000, and on or around the government’s target of 2% for 19 of 23 years.

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8
Q

In which years has inflation not been stable?

A

2008 and 2011 - Following the effects of the financial crisis. 2022 and 2023 - Following the effects of COVID, and the war in Ukraine.

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9
Q

How does the UK’s inflation rate compare to other G7 countries?

A

All of the G7 countries, excluding Japan, have had stable rates of inflation, and all have peaked at the same time.

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10
Q

What does the comparison of inflation rates show?

A

That there is lots of economic integration between G7 countries.

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11
Q

What is the current unemployment rate?

A

4.2%.

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12
Q

What has happened to the unemployment rate since 1971?

A

It has not remained stable, peaking at around 12% in 1985, and 1992, and following 2008, and then got lower after that.

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13
Q

How does the unemployment rate compare to other G7 Countries?

A

The UK tends to have a lower unemployment rate than other G7 countries, particularly France, Italy, and Canada.

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14
Q

Why is Italy’s unemployment rate higher than other G7 countries?

A

An ageing population, so they spend more money on pensions and healthcare.

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15
Q

Which events in the UK caused high unemployment?

A

Deindustrialisation, Black Wednesday, 2008 Financial Crisis, Covid-19.

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16
Q

Is the trade balance of the UK Positive or Negative?

A

Negative, meaning we import more than we export.

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17
Q

Why is a negative trade balance bad for the UK?

A

We are a developed economy, so not much of our income comes from the sale of goods overseas.

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18
Q

Why was the trade balance positive during Covid?

A

We were buying less goods, and our trade balance of services increases.

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19
Q

Why do we have a negative trade balance of goods?

A

Lots of manufacturing has moved overseas.

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20
Q

How is the government budget balanced?

A

There is a budget deficit, meaning they spend more than they make.

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21
Q

Since when has the UK had a budget deficit?

A

2001.

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22
Q

Why did government spending increase in 2020?

A

Furlough Scheme - The government payed people’s wages during Covid, with funding coming from borrowing.

23
Q

How can the government increase revenue?

A

Raising Taxes.

24
Q

What is Fiscal Drag?

A

Freezing Tax thresholds, meaning that even when wages go up with inflation, thresholds don’t go up, so people pay more tax.

25
Q

What was government debt in 2000?

A

£500 billion.

26
Q

What is government debt now?

A

£2.5 Trillion.

27
Q

What has happened to the Debt:GDP ratio since 2007?

A

It has increased from 65% to 100%.

28
Q

What happens when Debt:GDP ratio exceeds 77%?

A

It slows economic growth by 1-7% for every percentage point above this.

29
Q

What is the 10 year bond yield for the government?

A

The amount of money they have to pay back on the debt they owe.

30
Q

What has happened to the 10 year bond yield over time?

A

It has risen from 2.8% to 4.3%, and rose since the 2022 mini budget.

31
Q

What % of spending is on debt interest?

A

10%.

32
Q

What happens when Debt:GDP ratio exceeds 100%?

A

It means a country doesn’t produce enough output to repay the debt it owes.

33
Q

What is the Debt:GDP ratio in the USA?

A

129%.

34
Q

What did the USA do to try and control their Debt:GDP ratio?

A

They introduced a debt ceiling, to discourage further borrowing.

35
Q

What were the results of the debt ceiling?

A

It has been raised more than 50 times, and has meant the government nearly defaulted on their payments.

36
Q

What were UK interest rates 10 years ago?

A

0.5%.

37
Q

What are interest rates now?

A

5.25%.

38
Q

What do higher interest rates lead to?

A

People being discouraged from making big purchases, such as a car or a house, as they have to pay more.

39
Q

Why do banks raise interest rates?

A

To reduce demand, and in turn, reduce inflation.

40
Q

What has happened to UK productivity since 1971?

A

It has increased from 45 to 100 per hour.

41
Q

How does productivity compare to the rest of the G7?

A

It’s the 4th highest in the G7, and 15% lower than Germany and the USA.

42
Q

How much did Productivity grow per year between 1974 and 2008?

A

Average 2.3% per year.

43
Q

How much did productivity grow per year between 2008-2023?

A

0.5% per year on average.

44
Q

What reasons do people give for low UK productivity?

A

Underspending on the public sector, and business sector. Poor management.

45
Q

Why is low productivity bad for an economy?

A

People are not used to their full potential, leading to stunted economic growth.

46
Q

What is an index number?

A

A data figure representing price or quantity, compared with a base number.

47
Q

What is an example of an index number?

A

CPI inflation.

48
Q

What is the base number usually?

A

100.

49
Q

What is the equation for index numbers?

A

Current figure/Figure in base year x 100.

50
Q

What are weighted averages?

A

Different elements are given different weighting in CPI. A car would have greater sway than fruit, as a greater % of income is spent on this.

51
Q

What are nominal values?

A

Values that have been adjusted for inflation.

52
Q

What are real values?

A

Values that have been adjusted for inflation.

53
Q

What is the equation for real value?

A

Index of comparison year/Index of current year x nominal value.

54
Q

What is the equation for percentage change of real GDP?

A

(New value - original value)/Original Value x 100.

MacroEconomics (15 decks)

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