M 1.1 Macroeconomic Indicators + gov objectives Flashcards
What is economic growth?
measures the rate of change of a country’s output
What is Gross domestic product?
calculates the sum of all gods and services, or level of output, produced in the economy over a period of time
What are the benefits of economic growth?
- job creation
- rising incomes
- improved standard of living
- improved international competitiveness of the UK economy
- multiplier and accelerator benefits
- lower government spending and business investment.
What does the Macroeconomic growth PPF show?
shows what the economy can produce, assuming that all labour, capital and land at the country’s disposal are employed to the full and assuming a given state of technical progress
What are capital goods?
durable good used in production of goods or services
What are consumer goods?
the end result of production and manufacturing and are what a consumer will see on the store shelf
Examples of capital goods?
- roads
- airports
- telecommunications
Examples of consumer goods?
food, clothes, furniture
What does long term economic growth lead to?
- increase in total productive capacity
- outward shift in PPF
What does short-run economic growth lead to?
- growth of real output ( occurs when there are unemployed resourcres in the economy
- makes use of spare capacity
what does PPF stand for?
Production Possibility Frontier
Examples of outward shift in PPF?
- higher productivity
- better managements of factor inputs
- increase in the stock of capital and labour supply
- innovation and invention of new products and resources
- discovery of natural resources
What are two types of GDP?
nominal and real
What is nominal GDP?
measured at current market prices, without removing the effects of inflation
What is real GDP?
a measure of all the goods and services produced in an economy, adjusted for price changes or inflation
When does full employment occur/
when the number of workers willing to work equals the number of workers employers wish to hire
What is a market - clearing wage?
a wage that clears the market there is neither excess demand or supply of labour
What is unemployment?
those able, available and willing to work but cannot find a job despite an archive search
give examples of people who are economically inactive or unemployed?
- students in full time education
- pensioner
- discouraged workers
- sick/ diabled people
- housewives/ husbands
What are some problems with unemployment?
- some scarce human resources are not being used to produce goods and services to meet peoples needs and wants
- waste to an economy -
- increased crime , alcoholism, vandalism
- lower personal incomes + standard or living
- reletively poor physical and mental health
- loss of tax revenue
What is the measure of unemployment called?
claimant count - measure of measuring unemployed according to those claiming unemployment beneifts
What are issues with measuing unemployment/
- not all unemployed will bother to claim
- some are deterred becuase cannot proove looking for work
- some individuals may fraudulently claim
What is the second method of measuring unemployment?
labour force survey measure
What is the labour force survey measure?
quaterly sample servey of 40,000 housholds in the Uk
- counts those without any job including part time, who have looked for work in the month and are ready to work
What has both surveys on unemployment shown?
that they are not accurate as been differant results
What are the the two difficulties with measuring unemployment?
- underemployment: some people are classed as employed
- inactivity rates/ leaving job market: some may stop applying
Why is it not possible to eliminate unemployment completely?
- always be some unemplyment as economy is constantly changing. some jobs dissapear while new jobs are created and robots may replace many jobs and therefor can expect higher unemployment in future
What is inflation?
the general rise in average prices across the economy.
What is rate of inflation measured by?
annual percentage change in consumer prices
What does inflation lead to?
decline in value of money
What is deflation?
negative inflation, falling average price level
What is disinflation?
occurs when the rate of inflation is falling but is still positive
What is CPI?
official measure used to calculate the rate of consumer price inflation in the uk. calculates average price increase of 700 baskets of consumer goods and services
What does CPL stand for?
comparative price level
What is RPI?
includes more factors like mortgage interest payments, council tax and other housing costs not in CPI
What does RPI stand for?
retail price index
What does CPI and RPI both do?
measure inflation rate
What does the government currently use CPI for?
indexation of state pensions and welfare benifits and fro setting a monetary policy target
What does the government currently use RPI for?
upgrading each year the costs of TV and motor viechile licenses, together sometimes with taxes on goods like alcoholic drinks
What is indexation?
the automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through price index
How do you work out price index?
sum of (price x weight) / sum of weights
What are the disadvantages of using CPl as a measure of inflation?
- not fully represntative - innacurate for non-typical households
- spending matters- single people have differant patterns then full households
- changing quality of goods and services - price may rise due to better qualtiy
- new products - doesnt keep up with new products
What are policy instruments?
three main sets of policy instruments that the Uk government usually use to achive economic objectives
What are the three main policy instrumentd>
- monetary policy
- fiscal policy
- supply side policies
What are policy indicators?
provides government with the information about the state of the economy and whether policy is on course to achieve its objectives
What is economic stability?
occurs when there is an absence of big swings in prices and output and jobs
How do you work out unemployment rate?
number of workers unemployed / labour force
how do you work out labour participation rate?
labour force / total population
What does balance of payments show?
payments and receipts made between consumers, businesses and the government, which involves the exchange of different national currencies
What are the payments recieved from other countries?
inflow, credit, positive input, demand for domestic currency
What are the payments made to other countires?
outflow, deficit, negative input, supply of domestic currency
What are the three componants of balance of payment?
- current account, financial account, capital account
What are exports?
domestically produced goods or services sold to residents of other countries
What are inports?
goods or services produced in other countires and sold to resisdents of this country
What is investment income in?
money in from activities such as purchasing of shares or interest on loans abroad
What is investment income out?
money out from activities such as purchasing of shares or interest on loans abroad
What are transfers in?
gifts from residents of differant countires, donations to charities abroad and overseas aid
What are transfers out?
gifts to residents of differant countries, donations to charities abroad, overseas aid
What are inports of goods?
value of tangible products purchased from abroad
What is exports of goods?
value of tangible products sold abroad
What is imports of services?
value of services purchased from abroad
What is export of services?
value of services sold abroad
What does the current account measure?
all the currency that flows into and out of the country in a particular time period in payment for exports and imports, together iwth income anf transfer flows
What is balance of trade?
the differance between the money and value of a countries imports and exports
largest conponant of countries balance of payments on current account
What is a balance of trade deficit
the money value of a countrys imports exceeds the money value of exports
What is a balance of trade surplus
the money value of a countys exports exceeds the money value of imports
What are the four conponants that you add together to get the current account?
- trade in goods
- trade in services
- income payments
- current transfer
What is current account deficit?
debt is greater then credit. means an outflow of demand and income from a countrys circular flow of income
What is a current account surplus?
debt is smaller then credit. means an inflow of demand and income from a countrys circular flow of income
What is a current account surplus?
debt is smaller then credit. means an inflow of demand and income from a countrys circular flow of income
What is a current account surplus?
debt is smaller then credit. means an inflow of demand and income from a countrys circular flow of income
What is the differance between trade deficit and current account deficit?
- trade deficity means the value of imports is greater then value of exports whereas current account deficit means that the outflow due to trade in goods and services, current account also includes primary income and secondary income are greater then inflow
Reasons for current account surplus?
- export-orientated growth strong international competitiveness
- strong income from overseas investment
- ## price factors: rise in imports, fall in price imports
Reasons for current account surplus?
- export-orientated growth strong international competitiveness
- strong income from overseas investment
- price factors: rise in imports, fall in price imports
Reasons for current account deficit?
- high consumer spending on imports
- weak international competitiveness
- imposition of trade barriers by trading partner
- economic downturn in exporting destinations
What are the problems with running a current account deficit?
- loss of jobs in export sectors and industries affected by rising imports
- fall in foreign exchange
- lead to exchange rate weakness
What is the financial account
records flow of money into and out of a country to pay for investments in capital, shares and loans
What are the componants of the financial account?
- foreign direct investment
- portfolio investment
- financial derivatives
- reserve assets
- hot money
What is foreign direct investmnet?
foreign firm sets up a factory, office or retail outlet
What is portfolio investment?
purchase of loans, shares and bonds
What are financial derivatives?
any financial instrument whose underlying value is based on another asset such as foreign currency, interest rates, commodities or indices
What are reserve assets?
government transaction in foreign exchange reserve
What is hot money?
refers to short term investment or large sums of money moved by investors from country to country to in search of the best intersest rates
What is the capital account?
- flow of money into and out of a country to pay for a change of ownership of fixed assets or cancellation of debts
WHat are net errors and omissions>
this account is used to take into the account any errors and omissions in the other accounts
What is satisfactory balance of payments?
current account is in equilibrium or when there is a small surplus or a small but sustainable deficit
What are the two types of productivity?
labour productivity and capital productivity
What is labour productivity?
output per worker, oer period of time
WHat is capital productivity?
output per unit of capital
What is budget deficit?
if government expenditure is greater than its taxation revenue it must borrow to fund the difference
What does performance indicators provide?
information for judging the success or failure of a particular type og government policy.
Formula for nominal GDP per capita?
nominal GDP per capita = nominal GDP / population
Growth rate of real GDP formula?
Growth rate of real GDP = growth rate of nominal GDP - inflation rate
Growth rate of real GDP per capita?
Growth rate of real GDP per capita = Growth rate of nominal GDP - inflation rate - growth rate of population
unemployment rate formula?
unemployment rate = number of people unemployed / size of labour force
Inflation rate formula?
inflation rate = change of CPI / original CPI
Balance of trade formula?
Balance of trade formula = value of export - value of import
