Key Terms 9 - The Measurement of Macroeconomic Performance Flashcards
Policy Objectives
A target or goal that policy-makers aim to ‘hit’.
Short-Run Economic Growth
Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy
Long-Run Economic Growth
An increase in the economy’s potential level of real output, and an outward movement of the economy’s production possibility frontier.
Gross Domestic Product
The sum of all goods and services, or level of output, produced in the economy over a period of time, e.g. 1 year.
Real GDP
A measure of all the 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.
Nominal GDP
GDP measured at the current market prices, without removing the effects of inflation.
Full Employment
According to Beveridge’s definition, full employment means 3% or less of the labour force unemployed. 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.
Claimant Account
The method of measuring unemployment according to those people who are claiming unemployment-related benefits (Jobseeker’s Allowance).
Labour Force Survey
A quarterly sample survey of households in the UK. Its purpose is to provide information on the UK labour market. The survey seeks information on respondents’ personal circumstances and their labour market status during a period of 1-4 weeks.
Inflation
A persistent or continuing rise in the average price level.
Deflation
A continuing tendency for the average price level to fall.
Disinflation
When the rate of inflation is falling, but is still positive.
Price Index
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 price(s) in a base year.
Consumer Prices Index
The official measure used to calculate the rate of consumer price inflation in the UK. It calculates the average price increase of a basket of 700 different consumer goods and services.
Retail Prices
A measure formerly used to calculate the rate of consumer price inflation in the UK.
Indexation
The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of a price index.
Balance of Payments
A record of all the currency flows into and out of a country in a particular time period.
Current Account
Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows (previously known as ‘income flows and transfers’).
Exports
Domestically produced goods or services sold to residents of other countries.
Imports
Goods or services produced in other countries and sold to residents of this country.
Balance of Trade
The difference between the money value of a country’s imports and exports. Balance of trade is the largest component of a country’s balance of payments on current account.
Balance of Trade Deficit
When the money value of a country’s imports exceeds the money value of its exports.
Balance of Trade Surplus
When the money value of a country’s exports exceeds the money value of its imports.
Trade-Off Between Policy Objectives
Although it may be impossible to achieve two desirable objectives at the same time, e.g. zero inflation and full employment, policy-makers may be able to choose an acceptable combination lying between the two extremes, e.g. 2% inflation and 4% unemployment.
Policy Conflict
Occurs when two policy objectives cannot both be achieved at the same time: the better performance in achieving one objective, the worse the performance in achieving the other.
Index Number
A number used in an index, such as the consumer price index, to enable accurate comparisons over time to be made.
National Income
The flow of new output produced by the economy in a particular period, e.g. a year, measured by the flow of factor incomes.
National Product
The flow of new output produced by different industries in a particular period, e.g. a year.
Consumption
Total planned spending by households on consumer goods and services produced within the economy.
