Key Terms 9 - The Measurement of Macroeconomic Performance

Question 1

Policy Objectives

Answer 1

A target or goal that policy-makers aim to ‘hit’.

Question 2

Short-Run Economic Growth

Answer 2

Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy

Question 3

Long-Run Economic Growth

Answer 3

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

Question 4

Gross Domestic Product

Answer 4

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

Question 5

Real GDP

Answer 5

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.

Question 6

Nominal GDP

Answer 6

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

Question 7

Full Employment

Answer 7

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.

Question 8

Claimant Account

Answer 8

The method of measuring unemployment according to those people who are claiming unemployment-related benefits (Jobseeker’s Allowance).

Question 9

Labour Force Survey

Answer 9

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.

Question 10

Inflation

Answer 10

A persistent or continuing rise in the average price level.

Question 11

Deflation

Answer 11

A continuing tendency for the average price level to fall.

Question 12

Disinflation

Answer 12

When the rate of inflation is falling, but is still positive.

Question 13

Price Index

Answer 13

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.

Question 14

Consumer Prices Index

Answer 14

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.

Question 15

Retail Prices

Answer 15

A measure formerly used to calculate the rate of consumer price inflation in the UK.

Question 16

Indexation

Answer 16

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

Question 17

Balance of Payments

Answer 17

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

Question 18

Current Account

Answer 18

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’).

Question 19

Exports

Answer 19

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

Question 20

Imports

Answer 20

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

Question 21

Balance of Trade

Answer 21

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.

Question 22

Balance of Trade Deficit

Answer 22

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

Question 23

Balance of Trade Surplus

Answer 23

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

Question 24

Trade-Off Between Policy Objectives

Answer 24

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.

Question 25

Policy Conflict

Answer 25

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.

Question 26

Index Number

Answer 26

A number used in an index, such as the consumer price index, to enable accurate comparisons over time to be made.

Question 27

National Income

Answer 27

The flow of new output produced by the economy in a particular period, e.g. a year, measured by the flow of factor incomes.

Question 28

National Product

Answer 28

The flow of new output produced by different industries in a particular period, e.g. a year.

Question 29

Consumption

Answer 29

Total planned spending by households on consumer goods and services produced within the economy.