Macroeconomics- The Measurement Of Economic Performance

Question 1

What is a policy objective?

Answer 1

A target or goal that policy makers want to achieve

Question 2

What is a policy conflict?

Answer 2

a situation where one economic objective is achieved at the cost of another objective, an opportunity cost is involved

Question 3

What are the 4 main government objectives?

Answer 3

High economic growth
Low and steady inflation (~2%)
Low unemployment (~3%)
Satisfactory balance of payments (surplus: exports > imports)

Question 4

What is the difference between short run growth and long run growth?
How is this shown on a PPD?

Answer 4

Short run- resources that were underutilised are now being fully utilised

Long run- the productive capacity of an economy is increased

On a PPD when there is SR growth the economy moves onto the PPD from inside the curve.
When there is LR growth the PPD shifts right

Question 5

What is the difference between real and nominal GDP?

Answer 5

Real- GDP figure is adjusted for inflation
Nominal- GDP at current market prices without adjusting for inflation

Question 6

What is full employment?

Answer 6

When unemployment ≤3%
Demand for labour = supply of labour

Question 7

How is unemployment measured?

Answer 7

Claimant count- measures those who are claiming unemployment benefit

Labour force survey- A quarterly sample survey of households.

The labour force survey is more reliable as not all people who are unemployed claim benefit

Question 8

What is inflation, deflation and disinflation?

Answer 8

Inflation- the continuing rise in average price level
Deflation- the continuing fall in the average price level
Disinflation- The rate at which inflation is falling

Question 9

How is inflation measured?

Answer 9

CPI- A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households.

RPI- A price index that also includes mortgage repayments

Question 10

What is demand pull and cost push inflation?

Answer 10

Demand pull- Aggregate demand has increased and caused rising inflation

Cost push- Increase in cost of production leads to a rise in inflation

Question 11

What is a balance of payments surplus and deficit?

Answer 11

Surplus- value of exports > value of imports

Deficit- value of exports < value of imports

Question 12

What is a policy conflict?

Answer 12

When two policy objectives cannot be both achieved at the same time

Question 13

What is a trade off?

Answer 13

When there is an opportunity cost so one policy is chosen and the other is sacrificed

Question 14

What are the main policy conflicts in the UK?

Answer 14

Full employment and economic growth vs satisfactory balance of payments

Full employment and economic growth vs control of inflation

Economic growth vs greater income equality

Current living standards vs future living standards

Question 15

What is a performance indicator?

Answer 15

Something that provides information about the effectiveness of a policy

Question 16

What is the difference between a lead and a lag indicator?

Answer 16

Lead- provides information about the future state of the economy

Lag- provides information about the past and current state of the economy

Question 17

What do Keynesian economists and free market economists believe?

Answer 17

Keynesian- Governments should manage the economy, particularly through fiscal policy

Free market- Governments should leave the economy to the free market

Question 18

What are index numbers?

Answer 18

An index number is a number used to allow accurate comparisons over time to be made

The base year index number is 100. If the next year is 105 it would mean that there has been a 5% increase in whatevers being measured.

The number itself has no units and has little meaning, it is the changes in number which are important