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The International Economy > Macroeconomic Performance > Flashcards

Macroeconomic Performance Flashcards

1
Q

macroeconomic objectives

A

balance of payments
economic growth
minimizing unemployment
equity in distribution of income
low inflation

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2
Q

what is economic growth

A

an increase in national output measured in GDP

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3
Q

target rate of growth

A

2-3%

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4
Q

what doe strong economic growth lead to

A

higher incomes
lower unemployment
better government budgets

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5
Q

UK target inflation rate

A

2%

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6
Q

why is it good to have low inflation rate

A

symptom of economic growth

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7
Q

causes of inflation

A

demand pull
cost push

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8
Q

inflation rate trends in 2015-2023

A

Exceeded 2% target post-pandemic, peaking at ~8% in 2023.
Causes of Inflation:
Cost-Push Inflation, Demand-Pull Inflation: Increased spending after the pandemic.
So response: The Bank of England (BoE) uses monetary policy to regulate inflation.

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9
Q

target unemployment rate of UK

A

4-5%

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10
Q

what is balance of payments

A

is a record of all financial transactions that occur between a country and the rest of the world.

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11
Q

gov aim for balance of payments

A

equilibrium on the current account
exports > imports current account surplus
imports > exports create a current account deficit

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12
Q

examples of gov revenue

A

water, electricity
Taxes: VAT, corporation tax
Sales rev

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13
Q

examples of gov expenditure

A

gov spending
unemployment benefits
spending on public and merit goods

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14
Q

what is equitable distribution

A

ensures fairness and allows the same opportunity for everyone

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15
Q

how is income inequality measured

A

using the gini coefficient

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16
Q

what gov interention do the gov do to maintain acceptable levels of income inequality

A

redistribute income through progressive tax system

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17
Q

trade offs between macroeconomic objectives

A

economic growth and inflation
economic growth and env sustainability
low unemloyment and low inflation

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18
Q

how economic growth and inflation conflict

A

Economic growth moves the economy closer to full employment.
Resource prices are bid up, leading to inflation that may exceed the 2% target rate.

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19
Q

how can economic growth and environmental sustainability conflict

A

EG- negative externalities and depletion of non-renewable resources
higher the growth faster the rate

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20
Q

how does low unemployment and low inflation conflict

A

Fewer workers are available for hire.

Wage inflation occurs, contributing to overall inflation.

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21
Q

measure of balance payments

A

current account

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22
Q

measure of unemployment

A

claiamant account
labour force survey

23
Q

measure of inflation

A

CPI RPI

24
Q

measure of economic grwth

A

nominal gdp
real gdp
real gdp per capita

25
Q

difference between real nominal and gdp per capita

A

nominal- doesnt take into account inflation
real - adjusted for inflation
real gdp per capita- real gdp divided by total population

26
Q

what is inflation

A

sustained increase in price over a period of time

27
Q

what is CPI

A

Measures the average change in prices of a basket of goods and services, excluding housing costs.

28
Q

what is RPI

A

Measures the average change in prices of a basket of goods and services, including housing costs like mortgage interest payments

29
Q

formula used to calculate CPI

A

CostofBasketinBaseYear/
CostofBasketinCurrentYear
​×100

30
Q

what is the claimant account

A

the number of people in the UK claiming unemployment-related benefits, like Universal Credit or Jobseeker’s Allowance (JSA)

Excludes those who are unemployed but not eligible for benefits

31
Q

what is the labour force surey

A

a survey with 60000 to self determine whether theyre unemployed used international comparisons

32
Q

what is the current account

A

It represents the flow of trade (exports - imports) in goods and services and net income payments

33
Q

what is net income

A

consists of income transfers by citizens who are abroad

34
Q

what is current transfers

A

payments in gov level between countries eg world bank

35
Q

why is the current account balance expressed as a percentage of gdp

A

allows for international comparisons

36
Q

what is a trade deficit

A

countrys imports>exports

37
Q

what is a trade surplus

A

exports>imports

38
Q

How does export-led growth and rising imports affect the balance of payments?

A

Helps improve the balance of payments, potentially moving it toward a surplus.
As income and wealth increase, demand for imports rises.

Consumers enjoy a variety of foreign goods and services.

Increased imports can push the balance toward a deficit.

39
Q

what is an index number

A

tool used by economists to track changes in prices, quantities, or economic activity over time.
enables comparison between countries

40
Q

how to calculate CPI

A

cost of basket in current year/ cost of basket in base year x100

41
Q

what to calculate inflation rate

A

New CPI - Previous CPI/ Previous CPI x 100

42
Q

how to calculate rpi

A

same as CPI but may be more accurate because of how sensitive it is to interest rate

43
Q

what is national income

A

total value of the new output of an economy over a period of time

produced by physical and human capital

44
Q

what is used to measure national income

A

nominal and real GDP

45
Q

fall in national income will indicate?

A

a recession

46
Q

what is a recession

A

two or more consecutive quarters of negative economic growth

47
Q

a rise in national income ma indicate what?

A

economic growth

48
Q

what is gross national income (GNI)

A

It represents the total income earned by a country’s residents, both domestically and abroad

49
Q

how can GNI be calculated

A

GDP+ (net income abroad)

(Wages+interest+rent+profit) + (net income from abroad)

50
Q

adv for national income data to asses changes in living standards

A

compares changes in living standards over tie

evaluates the effectiveness of economic policy

international comparisons

51
Q

disadv of GDP data to compare living standards between countries over time

A

provided as an average so diff. in living standards in the same country can be significantly
Quality of goods and services
Does not include unpaid or voluntary work
Diff. in hours worked
Environmental factors

52
Q

why is PPP is better than GDP when making international comparisons

A

limitations of gdp Currency value differences make it an inaccurate measure for comparing living standards.

53
Q

How does Purchasing Power Parity (PPP) compare living standards between countries?

A

PPP Example:

Basket of goods: $150 in Vietnam vs. $450 in the USA.
PPP = 1:3 (cost of living is higher in the USA).
Interpreting GNP per capita with PPP:

If USA GNP/capita is more than 3x Vietnam’s, the USA likely has a higher standard of living.
If USA GNP/capita is less than 3x Vietnam’s, Vietnamese citizens may enjoy a higher standard of living, spending less income on the same goods/services.

54
Q
A

The International Economy (6 decks)

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