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Economics AS - Macro > Ch.6 The Measurement Of Macroeconomic Performance > Flashcards

Ch.6 The Measurement Of Macroeconomic Performance Flashcards

1
Q

What is macroeconomics?

A

Macroeconomics refers to the economy as a whole. I.e. On a national scale.

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2
Q

What is a macroeconomic objective?

A

A goal a government would like to achieve for the macroeconomy.

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3
Q

What is an economic policy?

A

The economic tools and instruments available for a government to use to influence economic performance. This means that the economic objectives that the government would like to achieve involve the manipulation of these tools.

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4
Q

What are the main objectives of government macroeconomic policy?

A

The main objectives of macroeconomic policy are:
Economic growth
Price stability (inflation rate)
Levels of unemployment
The balance of payments
Balancing the budget
Achieving an equitable distribution of income.

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5
Q

What is economic growth?

A

The measure of how much the value of output produced in an economy (known as national income) has grown over a period of time, usually over one year. It is calculated as the percentage change in national income over a period of time.

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6
Q

What is short run economic growth?

A

Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy. This is represented by a shift of a point inside the ppf to on the ppc.

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7
Q

What is long run economic growth?

A

An increase in the economy’s potential level of real output, and an outward shift of the economy’s production possibility curve (frontier).

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8
Q

What is gross domestic product (GDP)?

A

The sum of all goods and services, or level of output, produced in the economy over a period of time (1 year).

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9
Q

What is real GDP?

A

A measure of all goods and services produced in an economy, adjusted for price changes or inflation. The adjustment transforms changes in nominal GDP, which is measured in money terms, into a measure that reflects changes in the total output of the economy.

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10
Q

What is real GDP?

A

Real variables are those adjusted for changes in the level of prices, adjusting real GDP national income for changes in average prices.

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11
Q

What is per capita in terms of GDP?

A

A variable adjusted to give an amount per person.

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11
Q

How do you calculate the real GDP per capita?

A

You take the real GDP (total) and you divide it by the population level.

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13
Q

What is nominal GDP?

A

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

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14
Q

What is price stability?

A

How fast the average level of prices of a range of goods and services rises over a period of one year.

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15
Q

What is inflation?

A

A persistent or continuing rise in price level across the whole economy.

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16
Q

What is deflation?

A

A persistent or continuing fall in the average price level across the economy.

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17
Q

What is disinflation?

A

When the rate of inflation is falling but still positive.

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18
Q

What is a price index?

A

An index number showing the extent to which a price, or a “basket” of prices, has changed over a month, quarter or year, in comparison with the prices in the/a base year.

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19
Q

In the U.K. what are the two main measures of the price level used to record the rate of inflation?

A

The two measures are:
The consumer price index (CPI)
And
The retail price index (RPI)

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20
Q

What is the consumer prices index?

A

The official measure used to calculate the rate of consumer price inflation in the U.K. The CPI calculates the average price increase of a basket of 700 different consumer goods and services.

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21
Q

What is the retail price index?

A

An older measure used to calculate the rate of consumer price inflation in the U.K. Currently, the U.K. Government uses the CPI for the indexation of state pensions and welfare benefits and for setting a monetary policy target, and the RPI for updating each year the cost of TV and motor vehicle licenses, together sometimes with taxes on goods such as alcoholic drinks.

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22
Q

What is indexation?

A

The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of a price index.

23
Q

How is minimising unemployment measured?

A

This involves minimising the number of those of working age who are looking for work but are unable to find a job.

24
Q

What is unemployment?

A

This of working age who are currently out of work but are actively seeking work.

25
Q

What is the unemployment rate?

A

The number of unemployed people expressed as a percentage of the current labour force. The equation is number of people unemployed divided by the size of the labour force, all multiplied by 100.

26
Q

What is the labour force?

A

Those of working age who are either in work or actively seeking work.

27
Q

What are the two main measures of unemployment?

A

The claimant count and the labour force survey.

28
Q

What is the claimant count?

A

The measure of unemployment in the U.K. That counts those who are receiving unemployment benefits.

29
Q

What is the labour force survey (LFS)?

A

The labour force survey (based on a monthly sample of people) is a record of people who report that they are looking for work but cannot find it, regardless of whether they receive benefits or not.

30
Q

According to Beveridges definition, what is full employment?

A

According to Beveridges definition, full employment means that 3% or less of the labour force is unemployed.

31
Q

According to the free market definition, what is full employment?

A

According to the free market definition, it is the level of employment occurring at the market clearing real wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting to work.

32
Q

What is the balance of payments?

A

The record of financial transactions between the U.K. And the rest of the world. It measures the difference between the value of goods and services sold abroad and the value of goods and services bought from abroad.

33
Q

What is the balance of payments?

A

A record of all the currency flows into and out of a country in a particular time period.

34
Q

What is the current account balance of payments?

A

Part of the balance of payments which looks at the net income flows earned through either trade in goods and services or the reward from investments located overseas. It measures all of the currency flows into and out of a country at a particular time period in payment for exports and imports, together with income and transfer flows.

35
Q

What are exports?

A

Domestically produced goods or services sold to residents of other countries.

36
Q

What are imports?

A

Goods or services produced in other countries and sold to residents of this country.

37
Q

What is the balance of trade?

A

The difference between the money value of a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments on current account.

38
Q

How does the government want to balance the budget?

A

The government would like the value of government expenditure and the value of taxation to be the same as each other so that the governments budget is balanced.

39
Q

What is the balance of trade deficit?

A

The money value of a country’s imports exceeds the money value of its exports.

40
Q

What is the governments budget?

A

The budget refers to the value of government spending compared with the money earned by the government through taxation over a period of time.

41
Q

What is the balance of trade surplus?

A

The money value of a country’s exports exceeds the money value of its imports.

42
Q

What is the distribution of income?

A

How evenly incomes are shared between individuals and households across the economy. This is important because the government would like to ensure that the gap between the richest and poorest does not become excessively wide.

43
Q

What are the main priorities among the governments economic objectives?

A

Economic growth, price stability and minimising unemployment.

44
Q

What is a policy conflict?

A

A policy conflict attempts to achieve one economic objective move us further away from another economic objective.

45
Q

What are the conflicts in achieving the macroeconomic objectives?

A

Achieving the different economic objectives simultaneously can be difficult because of the potential conflicts that can occur.

This means that there can be policy conflicts (such as between a falling unemployment rate and price stability).

46
Q

What is productivity?

A

A measure of efficiency comparing the level of output with the level of inputs. It is essentially how much output is being produced by each unit of labour. Economic growth in the long term usually comes from an increase in productivity (I.e. Getting more output from existing resources).

47
Q

What is labour productivity?

A

The output of the workforce compared with the amount of labour (either in people or in hours) used to produce the output.

48
Q

Wha is capital productivity?

A

The output per item of capital equipment measured over a period of time.

49
Q

What is an index number?

A

A number designated to be used to show the size of changes in a variable over time. Index numbers will usually start with a value of 100 and this value is known as the base year value.the change in the index number will show how far the variable has moved away from its starting value.

50
Q

What should you know about the Consumer Price Index?

A

In the U.K. The inflation rate is measured through the annual percentage change in the CPI - an index number measuring the average level of prices for the U.K.

The CPI is calculated by combining price data for the U.K. As a whole for a variety of different products bought by an imaginary “typical” family. This means the CPI is meant to represent the spending patterns of a typical, average U.K. Household.

51
Q

What is the basket of goods and services?

A

The selection of products to be included within the price index based in typical household purchases. This inflation basket includes over 700 items and the price of these are checked in thousands of shops across the U.K. Each month.

52
Q

What is a weighted price index?

A

An average level of prices adjusted so that price changes in popular items affect the price index more than price changes in seldom-bought items. CPI is an example of a weighted price index.

53
Q

What are the issues with CPI?

A

Since it is based on an “imaginary” family it does not clearly reflect the exact spending patterns - how representative it is depends on how close an individuals spending patterns are to those on which the CPI is based.

The inflation “basket” has to include many goods and services that not everyone buys (cigarettes).

Regular updates to the basket means that the comparison between years is slightly different p, making it slightly inaccurate.

No account is taken for the quality of the products included on the list.

Economics AS - Macro (2 decks)

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