E - 9) The measurement of macroeconomic performance

Question 1

What are the government’s main macroeconomic objectives?

Answer 1

• Achieve economic growth
• Ensure price stability
• Maintain high employment rate
• Have stable balance of payments position

Question 2

What are the government’s secondary macroeconomic objectives?

Answer 2

• Higher standard of living
• Environmental protection
• Improved international competitiveness
• Improved public services
• Distribution of income and wealth
• Reducing poverty

Question 3

When might the prioritisation of macroeconomic objectives change?

Answer 3

• In a cost-of-living crisis, achieving price stability may become more important than growth
• In a recession, achieving economic recovery can be highest priority
• Climate change is pushing environment protection up the list of priorities

Question 4

What are some macroeconomic objective conflicts

Answer 4

• Faster growth can fuel demand-pull inflation and widen a deficit on the current account - income inequality may rise if the growth is not inclusive
• Low unemployment can increase real wages and cause cost-push inflation
• Polices to reduce inflation can slow growth and cause unemployment
• Reducing government borrowing and the national debt can slow growth and cause living standards to stagnate

Question 5

What are examples of macroeconomic indicators?

Answer 5

• GDP
• Nominal GDP
• Real GDP
• Real GDP per capita
• Value vs volume
• Inflation: CPI and RPI
• Unemployment: labour force survey and claimant count
• Productivity: productivity, total factor productivity and labour productivity
• Balance of payments: BoP, BoP on the current account and BoP of trade in goods and services
• Public finances
• Income inequality
• International competitiveness