Macro objectives and indicators Flashcards
GDP
Total values of goods and services produced by a country.
Nominal GDP
Measures output of a country using current prices.
Real GDP
Measures output of a country using constant prices.
Real GDP per capita
Average goods and services produced per person.
Real GDP per capita formula
Real GDP / population
Free market
Number of workers willing to work equals the number of workers whom employers wish to employ.
Consumer Price Index
The CPI measures household purchasing power with the Family Expenditure Survey. It measures what consumers spend their incomes on, thus creating a weighted basket of goods.
Retail Price Index
The RPI is an alternative measure of inflation, which takes into consideration housing costs, such as mortgage interest and council tax.
Labour productivity formula
Output / number of employees at work
Productivity stagnation
Firms are unable to increase productivity due to lack of activity.
Index number formulae
Figure / base x 100
Price Index formula
(Nominal GDP / Real GDP) X 100
Circular flow of income leakeages and injections
Injections put money into the flow
Leakages take money out of the flow
Balance of payments
Records financial transactions between customers, businesses and the government.
Limitations of using CPI
Focuses on urban consumption - the rural population is 18% of the UK (10,000,000 people)
Subsitution bias - A rise in price of a basket of goods, exaggerates a consumers cost of living, as consumers can substitute away from expensive goods.
What is monetary policy?
Monetary policy is using monetary instruments to try and achieve policy objectives
eg. manipulating interest rates and supply of money.
Difference between Monetary policy objective and a monetary policy instrument?
MPO’s are targets the Bank of England aims to hit.
MPI’s are the tools used to achieve these objectives.
Bank of England’s MPO is inflation at 2%, between 1-3%, by using rates of interest as the MPI.
Hot money flows
Capital flows moving to countries with higher interest rates due to a higher reward for saving.
Leads to more demand for the pound appreciating the value.
Quantitative easing
A form of monetary policy where the central bank buys corporate bonds from the open market, to inject money into the circular flow and reduce long term interest rates.
What is Fiscal policy?
Fiscal policy are government led policies relating to government spending, borrowing, and taxation.
Progressive, Regressive, and Proportional taxes
Progressive taxes are taxing a higher proportion of incomes as incomes rise.
Regressive taxes are taxing a high proportion of income as incomes fall
Proportional taxes is taxing the same proportion of income regardless of income.
Types of government spending - fiscal policy
Welfare spending - unemployment benefits, min. wage
Public services - NHS salaries
State investment - infrastructure
Free-market supply side policies
Policies to increase competitiveness and free market efficiency eg. privatisation, deregulation, lower corporation tax rates (more retained profits).
Real life example of deregulation
EU Working Time Directive (WTD) sets out a 48 hour working week.
