Chapter 6 - Measurement Of Macroeconomic Performance Flashcards
What is a policy objective?
A target or goal that a government wishes to achieve or ‘hit’
What is short run economic growth?
Growth of real output resulting from using idle resources (movement from a point inside the ppf to on the ppf)
What is long run economic growth?
An increase in the countries potential level of real output, and an outward shift of the economy’s production possibility frontier
Gross domestic product (GDP)
The total number of goods and services produced in an economy over a period of time
What is the difference between real GDP and nominal GDP?
Real GDP has been adjusted for price changes or inflation whereas nominal GDP is GDP measured at the current market prices, without removing the effects of inflation
Beveridge definition of full employment
3% or less of the labour force are unemployed
What is the free-market definition of full employment?
The number of workers whom employers wish to hire equals the number of workers wanting to work
What is better about Beveridge’s definition of full employment?
It accepts that withers will always be some unemployment because the economy is always changing
Why do free-market economists prefer their definition of full employment?
They think the first definition is too arbitrary and lacking any theoretical underpinning
Claimant count
The method of measuring unemployment according to those people who are claiming unemployment-related benefits
Labour force survey
A quarterly sample survey of households in the UK which seeks info about personal circumstances and their labour market status during a period of 1-4 weeks
What is inflation?
A persistent or continuing rise in the average price level
If the price of a particular good or service within an economy changes, is this inflation?
No, inflation occurs when most prices are rising by some degree across the whole economy
What does controlling inflation mean?
Achieving a low inflation rate rather than absolute price stability (a zero rate of inflation is extremely rare)
What is the target inflation rate in the UK?
2%
What is deflation?
A persistent or continuing fall in the average price level
Difference between deflation and disinflation?
Disinflation is when the rate of inflation is falling but is still positive whereas deflation involves a falling average price level
What are the two different ways to measure inflation in the UK?
Consumer price index (CPI)
Retail prices index (RPI)
What is consumer price index/how is it measured
It calculates the average price increase of a basket of 700 different consumer goods and services
- the official measure
What is RPI/ when is it used?
- an older measure
- UK government use for indexation of state pensions + benefits
What is the current account of the balance of payments?
It measures all of the currency flows into and out of a country in a particular time period in pay,ent for exports and imports
What are exports?
Goods and services produced domestically (inside a particular country) and sold to residents of other countries
What are imports?
Goods or services produced in other countries and sold to residents of this country
What is a balance of trade deficit?
It occurs when the money value of a country’s imports exceeds the money value of it’s exports
What is a balance of trade surplus?
It occurs when the money value of a country’s exports exceeds the money value of it’s imports
What does it mean by the objective of ‘balancing the budget’?
When the government spending equals government revenue (mainly from tax)
What is a budget deficit?
When the government spending is greater than government revenue
What is a policy conflict?
It occurs when two objectives cannot be achieved simultaneously; the better the achieving one objective, the worse the performance in achieving the other
What is the trade off between economic growth and environmental protection?
Increased production of goods and services = higher CO2 emissions, loss of biodiversity and greater output of non-biodegradable waste
- global warming damages living standards of current + future generations (more extreme weather conditions)
- loss of biodiversity and finite resources could compromise the living standards of future generations
What is the trade off between Balance of payments equilibrium on the current account and economic growth
As GDP rises and real incomes increase, citizens consume more foreign goods and services e.g. foreign built cars and holidays
What is the trade off between falling unemployment and low inflation rates?
As unemployment falls, real income increases meaning demand for goods and services increase. This causes demand-pull inflation. PHILLIPS CURVE
What do Keynesian economists believe?
That the government should manage the economy
What do free-market economists believe?
They dislike government intervention
What is the monetary policy?
The use by the government and the Bank of England of interest rates and other instruments to try to achieve the governments policy objectives
What is the fiscal policy?
The use by the government of government spending and taxation to try achieve the government’s policy objectives
What are lead indicators?
Provide info about the future state of the economy
- from surveys of consumer and business confidence and investment intentions to provide info about aggregate demand in the future
What are lag indicators?
Provide info about past and possibly current economic performance and to what extent policy objectives have been achieved.
what is GNP a measurement of?
the total value of all finished goods and services produced by a country’s citizens in a given financial year, irrespective of their location
e.g.f a German-owned company has a factory in the United States, the output of this factory would be included in U.S. GDP, but in German GNP.
what is national income?
GNP - depreciation ( the cost of replacing capital due to wear and tear)
