9 - Macroeconomic Performance Flashcards
What are the objectives of government policy?
Economic Growth, Price Stability, Minimise Unemployment, Stable balance of payments.
What has happened to the UK’s GDP since 1949?
It has increased year on year.
What % of GDP growth is considered stable for an advanced economy?
2-3%.
In which years has GDP growth contracted, over the last 30 years?
1992, 2008, 2020.
What does the growth in GDP per capita mean for living standards?
It means the standard of living is higher than it used to be, and the poorest can afford more than they used to.
Why is GDP per capita not always accurate?
It doesn’t give the full picture of the proportion of wealth in a country.
What has happened to inflation since 2000?
It has remained mostly stable since 2000, and on or around the government’s target of 2% for 19 of 23 years.
In which years has inflation not been stable?
2008 and 2011 - Following the effects of the financial crisis. 2022 and 2023 - Following the effects of COVID, and the war in Ukraine.
How does the UK’s inflation rate compare to other G7 countries?
All of the G7 countries, excluding Japan, have had stable rates of inflation, and all have peaked at the same time.
What does the comparison of inflation rates show?
That there is lots of economic integration between G7 countries.
What is the current unemployment rate?
4.2%.
What has happened to the unemployment rate since 1971?
It has not remained stable, peaking at around 12% in 1985, and 1992, and following 2008, and then got lower after that.
How does the unemployment rate compare to other G7 Countries?
The UK tends to have a lower unemployment rate than other G7 countries, particularly France, Italy, and Canada.
Why is Italy’s unemployment rate higher than other G7 countries?
An ageing population, so they spend more money on pensions and healthcare.
Which events in the UK caused high unemployment?
Deindustrialisation, Black Wednesday, 2008 Financial Crisis, Covid-19.
Is the trade balance of the UK Positive or Negative?
Negative, meaning we import more than we export.
Why is a negative trade balance bad for the UK?
We are a developed economy, so not much of our income comes from the sale of goods overseas.
Why was the trade balance positive during Covid?
We were buying less goods, and our trade balance of services increases.
Why do we have a negative trade balance of goods?
Lots of manufacturing has moved overseas.
How is the government budget balanced?
There is a budget deficit, meaning they spend more than they make.
Since when has the UK had a budget deficit?
2001.
Why did government spending increase in 2020?
Furlough Scheme - The government payed people’s wages during Covid, with funding coming from borrowing.
How can the government increase revenue?
Raising Taxes.
What is Fiscal Drag?
Freezing Tax thresholds, meaning that even when wages go up with inflation, thresholds don’t go up, so people pay more tax.
What was government debt in 2000?
£500 billion.
What is government debt now?
£2.5 Trillion.
What has happened to the Debt:GDP ratio since 2007?
It has increased from 65% to 100%.
What happens when Debt:GDP ratio exceeds 77%?
It slows economic growth by 1-7% for every percentage point above this.
What is the 10 year bond yield for the government?
The amount of money they have to pay back on the debt they owe.
What has happened to the 10 year bond yield over time?
It has risen from 2.8% to 4.3%, and rose since the 2022 mini budget.
What % of spending is on debt interest?
10%.
What happens when Debt:GDP ratio exceeds 100%?
It means a country doesn’t produce enough output to repay the debt it owes.
What is the Debt:GDP ratio in the USA?
129%.
What did the USA do to try and control their Debt:GDP ratio?
They introduced a debt ceiling, to discourage further borrowing.
What were the results of the debt ceiling?
It has been raised more than 50 times, and has meant the government nearly defaulted on their payments.
What were UK interest rates 10 years ago?
0.5%.
What are interest rates now?
5.25%.
What do higher interest rates lead to?
People being discouraged from making big purchases, such as a car or a house, as they have to pay more.
Why do banks raise interest rates?
To reduce demand, and in turn, reduce inflation.
What has happened to UK productivity since 1971?
It has increased from 45 to 100 per hour.
How does productivity compare to the rest of the G7?
It’s the 4th highest in the G7, and 15% lower than Germany and the USA.
How much did Productivity grow per year between 1974 and 2008?
Average 2.3% per year.
How much did productivity grow per year between 2008-2023?
0.5% per year on average.
What reasons do people give for low UK productivity?
Underspending on the public sector, and business sector. Poor management.
Why is low productivity bad for an economy?
People are not used to their full potential, leading to stunted economic growth.
What is an index number?
A data figure representing price or quantity, compared with a base number.
What is an example of an index number?
CPI inflation.
What is the base number usually?
100.
What is the equation for index numbers?
Current figure/Figure in base year x 100.
What are weighted averages?
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.
What are nominal values?
Values that have been adjusted for inflation.
What are real values?
Values that have been adjusted for inflation.
What is the equation for real value?
Index of comparison year/Index of current year x nominal value.
What is the equation for percentage change of real GDP?
(New value - original value)/Original Value x 100.
