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Economics Sub Sections > Macro 1 - How to Measure the Macroeconomy > Flashcards

Macro 1 - How to Measure the Macroeconomy Flashcards

1
Q

What are the main objectives of government economic policy?

A
  1. Economic growth.
  2. Price stability.
  3. Minimising unemployment.
  4. A stable balance of payments on current account.
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2
Q

What data is commonly used to measure the performance of an economy/

A

>real GDP, real GDP per capita, CPI, RPI, measures of unemployment, productivity and the balance of payments on current account.

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3
Q

Indicator and objective

A
  1. Growth - strong, sustained, sustainable.
  2. Unemployment - low and full employment.
  3. Inflation - low and stable, 2% (+/-1%).
  4. Trade - balanced.
  5. Distribution of income - ‘fair’ (normative as depends on view).
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4
Q

Economic growth - definition

A

>An increase in an economy’s productive potential. Usually measured as the rate of change of the GDP, or the GDP per capita.

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5
Q

GDP - definition

A

>All the goods and services produced by a country (national output).
>Calculate the value (£ billions) of all the goods and services produced in one year.

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6
Q

Nominal GDP - definition

A

>GDP which hasn’t been adjusted for inflation.
>Misleading as suggests GDP is higher than it is.

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7
Q

Real GDP - definition

A

>GDP which has been adjusted for inflation.

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8
Q

GNI

A

>Gross National Income.
>GDP plus net income from abroad.

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9
Q

GNP

A

>Gross National Product.
>Total output of the citizens of a country.

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10
Q

What can GNI and GNP be used for?

A

>Comparing standards of living.

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11
Q

GDP limitations

A

>Hidden economy.
>Public spending is different for different governments.
>Extent of income inequality.
>Working hours and conditions.
>Different spending needs, e.g. heating.

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12
Q

PPP

A

>More accurate and easier comparison.

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13
Q

Inflation - definitions

A
  1. The sustained rise in the average price of goods and services over a period of time.
  2. Or it can be seen as a fall in the value of money.
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14
Q

Deflation

A

>Fall in the average price.

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15
Q

Disinflation

A

>Slowing down of the rate of inflation.

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16
Q

Hyperinflation

A

>Prices rise extremely quickly and money rapidly loses its value.

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17
Q

How is inflation measured?

A

>Retail Price Index.
>Consumer Price Index.

18
Q

Retail Price Index

A

>Living Costs and Food Survey then it measures the changes in price of around 700 of the most commonly used goods and services.
>Basket of goods reflects what households may spend money on.

19
Q

Consumer Price Index

A

>Slightly different to RPI as it excludes, mortgage interests and council tax.
>Slightly different formula.
>Larger sample of the population is used.
>CPI is the official measure of inflation in UK and is used for international comparisons.

20
Q

CPI vs RPI

A

>CPI tends to be a little lower except when interest rates are really low.

21
Q

Uses of RPI and CPI

A

>Help determine wages and state benefits and measures changes in UK’s international competitiveness.
>If the CPI is higher in UK than others then UK price is less competitive.

22
Q

Unemployment

A

>The level of unemployment is the number of people who are looking for a job but cannot find one.
>The rate of unemployment is the number of people out of work (but looking for a job) as a percentage of the labour force.

23
Q

When is unemployment rate used?

A

>Different population sizes.

24
Q

How is unemployment measured

A
  1. Labour Force Survey.
  2. Claimant Account.
25
Q

Claimant Account

A

>Number of people claiming JSA.
>Monthly, easy to obtain, can be manipulated, excludes thos not eligible for JSA but that are seeking work.

26
Q

Labour Force Survey

A

>More accurate.
>Internationally comparitable.
>Run by ILO (International Labour Organisation).
>Less up to date.
>Expensive.
>May be unrepresentative of whole population as it takes a sample.

27
Q

Types of unemployment

A
  1. Seasonal
  2. Structural
  3. Frictional
  4. Cyclical
28
Q

Cyclical unemployment

A

>When economy is in recession.
>Labour is derived from demand, demand falls, less labour is needed.

29
Q

Seasonal unemployment

A

>Demand for certain industries isn’t the same all year round.
>Regular.
>Predictable.

30
Q

Structural unemployment

A

>Difference in jobs available and the skill levels of the unemployed.
>Decline in industry.
>Negative Multiplier Effect.

31
Q

Frictional unemployment

A

>Unemployment experienced by workers between leaving one job and starting another.
>Time lag.

32
Q

What does full employment do?

A

>Maximises production.
>Raises standards of living/
>Used to measure health of an economy.

33
Q

Underemployment

A

>Has a job, but it doesn’t utilise a person’s skills, experience or availability to best effort.

34
Q

Balanced trade/ balance of payments

A

>A record of a country’s international transactions, i.e. flows of money in and out of a country.

35
Q

Current account

A

>Current account on the balance of payments = a part of the record of a country’s international flows of money.
>It consists of trade in goods, trade in services, international flows of income (salaries, interest, profit and dividends), and transfers.

36
Q

What does UK’s balance of payments show?

A
  1. Large deficit on balance of visible trade - UK imports more goods than it exports.
  2. Small surplus on balance of invisible trade - UK exports slightly more services than it imports.
  3. A surplus on flows of investment income.
  4. A deficit in transfers - e.g. UK makes foreign aid payments.

>£ - 25, 200 million (2019).

37
Q

Productivity

A

>The average output produced per unit of a factor of production, e.g. labour productivity would be the average output per worker or hour-worked.
>The higher the productivity, the higher economic growth.

38
Q

What is productivity affected by?

A

The amount and sophistication of capital equipment used by workers.

39
Q

What does productivity measure?

A

>How efficiently a company or an economy is producing its output.

40
Q

Index Numbers calculation

A

>Value for current period/value for base period x100.

41
Q

Index Numbers

A

>Quick and easy data comparisons.
>Base year always has an index value of 100.
>Tell us rate of increase but not able to compare actual figures.
>Compare rate of change with different sets of data - e.g. £ and $,

Economics Sub Sections (34 decks)

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