measurement of macroeconomic performance

Question 1

what does GDP stand for

Answer 1

gross domestic product

Question 2

what does GDP measure ?

Answer 2

measures the monetary value of final goods and services produced in a country in a given period of time

Question 3

nominal GDP

Answer 3

measures a country’s total economic output (goods and services) as valued at current market prices.

Nominal GDP, aka GDP at current prices – means the GDP data has not been adjusted for inflation

Question 4

real GDP

Answer 4

a macroeconomic statistic that measures the value of the goods and services produced by an economy in a specific period, adjusted for inflation.

Real GDP is inflation adjusted. Adjusting for ‘purchasing power parity’ may help solve this issue

Question 5

what is the difference between nominal and real GDP?

Answer 5

Both are considered financial measures of a country’s development and growth. However nominal GDP isn’t adjusted to inflation. And Real GDP is the measure of how much is actually produced in a country within a year, taking into account the level of inflation

Question 6

what are the two methods used to measure unemployment in the UK?

Answer 6

labour force survey
claimant count

Question 7

claimant count

Answer 7

Claimant count – the method of measuring unemployment according to those people who are claiming unemployment related benefits

Question 8

labour force survey

Answer 8

Labour force survey- a quarterly sample survey of households in the UK. It asks respondents their personal circumstances and their labour market status during a period of 1-4 weeks

Question 9

what is the UK governments objective for inflation ?

Answer 9

2%

Question 10

what is inflation?

Answer 10

Inflation Is a sustained increase in the general price level of goods and services within an economy, leading to a fall in consumers’ purchasing power and in the value of money

Inflation can be followed by a general increase in wages which can sometimes help offset its effects on consumer confidence

The UK government aim to keep the inflation rate low – the objective is 2%

Question 11

why is inflation a problem?

Answer 11

Falling incomes – this occurs if wages do not keep up in time with price increases

Uncertainty – high and volatile inflation is not good for spending confidence (whether we are considering a business or a consumer).

This is because agents are unable to predict outcomes and thus investments tend to fall

Question 12

what is the balance of payments?

Answer 12

The balance of payments is the difference in total value between payments into and out of a country

Question 13

what does the current account of the balance of payments usually contain?

Answer 13

two main sections: the money value of the exports and the money value of the imports

Question 14

what are the main macroeconomic policies?

Answer 14

Achieve high and sustained economic growth

Reduce unemployment

Achieve low and stable inflation- UK 2%

Satisfactory balance of payments

Question 15

How are macroeconomic factors measured?

Answer 15

Economic growth – GDP

Unemployment – claimant count and labour survey

Satisfactory balance of payments – flows of money value in and out of the country

Question 16

what are index numbers

Answer 16

Index numbers are a statistical technique used to help economists interpret large data and make easy comparisons

These are numbers that are used in economics to enable accurate comparisons over time to be made – GDP data, house prices , etc

Question 17

what is purchasing power?

Answer 17

Purchasing power is the financial ability to buy products and services

Question 18

what is the market basket?

Answer 18

The market basket is a permanent mix of goods and services that are consistently purchased and sold in an economic system

Question 19

what does the most common measurement of inflation look at ?

Answer 19

The most common measurements of inflation looks at price indices

Economists often look at RPI (retail price index) to measure inflation but CPI (consumer price index) tends to be the most common price index used

The base year of the CPI will always be 100

Question 20

What is the difference between CPI and RPI?

Answer 20

RPI is a price index with the same principles as CPI but ultimately uses a different basket of goods and services to measure inflation (it includes the cost of housing – mortgage interest and council tax – the CPI does not include these types of expenses

Question 21

what does CPI stand for and what does it measure?

Answer 21

consumer price index
CPI is a price index that measures the price changes in a basket of goods that a consumer tends to face

Question 22

how do we calculate CPI?

Answer 22

CPI = Price of new market basket / price of market basket in base year x 100

Question 23

Fiscal debt

Answer 23

Fiscal deficit - when a government spends more than it receives in tax revenue in a given time period.

So, governments must borrow.

Governments will aim to reduce the amount of borrowing

If interests’ payments on the national debt are high, this has a high opportunity cost – (this is money that could be spent on education or hospitals.)

Question 24

public debt

Answer 24

‘Public debt’ - governments debt

Question 25

consumer household debt

Answer 25

‘Consumer household debt’ - Debt owed by households

Question 26

what is economic growth?

Answer 26

an increase in real GDP. That is an increase in the real value of goods and services produced in an economy in a given period of time.

Question 27

what is a good measure of economic strength?

Answer 27

A better measure of economic strength is real GDP per capita (per capita means divided by the population)

Question 28

Unemployment

Answer 28

someone who is actively seeking a job but is currently without a job

Question 29

underemployed

Answer 29

Workers who would like, but can’t get more hours

Question 30

Productivity

Answer 30

the output per unit of input per hour

Question 31

Labour productivity

Answer 31

the output per worker per hour

Question 32

what is national income used to access ?

Answer 32

National income is used to access changes in living standards in a country, and between countries, over time. But it is not the perfect measure

Question 33

National income

Answer 33

the total value of goods and services produced in an economy in a given period of time.

Question 34

what is national income the same as ?

Answer 34

It is the same as national output or GDP

Question 35

what is higher GDP often correlated with?

Answer 35

higher incomes and so a higher standard of living

We can use national income data overtime to see whether people are generally getting richer overtime or not

Question 36

limitations of national income data

how can we improve it?

Answer 36

Two countries could have the same level of GDP (national income), but the country with the larger population will have a lower ‘average’ GDP per person.

So, we can improve national income data by looking at GDP per capita (GDP divided by population)

Question 37

Sustainability

Answer 37

the ability to meet the needs and wants of the current generation, without compromising the ability of future generations to meet their needs and wants

Question 38

what is national income?

Answer 38

National income – the total value of goods and services produced in an economy in a given period of time.