Macroeconomic Performance Flashcards
macroeconomic objectives
balance of payments
economic growth
minimizing unemployment
equity in distribution of income
low inflation
what is economic growth
an increase in national output measured in GDP
target rate of growth
2-3%
what doe strong economic growth lead to
higher incomes
lower unemployment
better government budgets
UK target inflation rate
2%
why is it good to have low inflation rate
symptom of economic growth
causes of inflation
demand pull
cost push
inflation rate trends in 2015-2023
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.
target unemployment rate of UK
4-5%
what is balance of payments
is a record of all financial transactions that occur between a country and the rest of the world.
gov aim for balance of payments
equilibrium on the current account
exports > imports current account surplus
imports > exports create a current account deficit
examples of gov revenue
water, electricity
Taxes: VAT, corporation tax
Sales rev
examples of gov expenditure
gov spending
unemployment benefits
spending on public and merit goods
what is equitable distribution
ensures fairness and allows the same opportunity for everyone
how is income inequality measured
using the gini coefficient
what gov interention do the gov do to maintain acceptable levels of income inequality
redistribute income through progressive tax system
trade offs between macroeconomic objectives
economic growth and inflation
economic growth and env sustainability
low unemloyment and low inflation
how economic growth and inflation conflict
Economic growth moves the economy closer to full employment.
Resource prices are bid up, leading to inflation that may exceed the 2% target rate.
how can economic growth and environmental sustainability conflict
EG- negative externalities and depletion of non-renewable resources
higher the growth faster the rate
how does low unemployment and low inflation conflict
Fewer workers are available for hire.
Wage inflation occurs, contributing to overall inflation.
measure of balance payments
current account
measure of unemployment
claiamant account
labour force survey
measure of inflation
CPI RPI
measure of economic grwth
nominal gdp
real gdp
real gdp per capita
difference between real nominal and gdp per capita
nominal- doesnt take into account inflation
real - adjusted for inflation
real gdp per capita- real gdp divided by total population
what is inflation
sustained increase in price over a period of time
what is CPI
Measures the average change in prices of a basket of goods and services, excluding housing costs.
what is RPI
Measures the average change in prices of a basket of goods and services, including housing costs like mortgage interest payments
formula used to calculate CPI
CostofBasketinBaseYear/
CostofBasketinCurrentYear
×100
what is the claimant account
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
what is the labour force surey
a survey with 60000 to self determine whether theyre unemployed used international comparisons
what is the current account
It represents the flow of trade (exports - imports) in goods and services and net income payments
what is net income
consists of income transfers by citizens who are abroad
what is current transfers
payments in gov level between countries eg world bank
why is the current account balance expressed as a percentage of gdp
allows for international comparisons
what is a trade deficit
countrys imports>exports
what is a trade surplus
exports>imports
How does export-led growth and rising imports affect the balance of payments?
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.
what is an index number
tool used by economists to track changes in prices, quantities, or economic activity over time.
enables comparison between countries
how to calculate CPI
cost of basket in current year/ cost of basket in base year x100
what to calculate inflation rate
New CPI - Previous CPI/ Previous CPI x 100
how to calculate rpi
same as CPI but may be more accurate because of how sensitive it is to interest rate
what is national income
total value of the new output of an economy over a period of time
produced by physical and human capital
what is used to measure national income
nominal and real GDP
fall in national income will indicate?
a recession
what is a recession
two or more consecutive quarters of negative economic growth
a rise in national income ma indicate what?
economic growth
what is gross national income (GNI)
It represents the total income earned by a country’s residents, both domestically and abroad
how can GNI be calculated
GDP+ (net income abroad)
(Wages+interest+rent+profit) + (net income from abroad)
adv for national income data to asses changes in living standards
compares changes in living standards over tie
evaluates the effectiveness of economic policy
international comparisons
disadv of GDP data to compare living standards between countries over time
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
why is PPP is better than GDP when making international comparisons
limitations of gdp Currency value differences make it an inaccurate measure for comparing living standards.
How does Purchasing Power Parity (PPP) compare living standards between countries?
PPP adjusts GDP by accounting for differences in price levels, allowing a fair comparison of real purchasing power and living standards between countries.
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.
