measurement of macroeconomic performance Flashcards
what does GDP stand for
gross domestic product
what does GDP measure ?
measures the monetary value of final goods and services produced in a country in a given period of time
nominal GDP
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
real GDP
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
what is the difference between nominal and real GDP?
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
what are the two methods used to measure unemployment in the UK?
labour force survey
claimant count
claimant count
Claimant count – the method of measuring unemployment according to those people who are claiming unemployment related benefits
labour force survey
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
what is the UK governments objective for inflation ?
2%
what is inflation?
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%
why is inflation a problem?
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
what is the balance of payments?
The balance of payments is the difference in total value between payments into and out of a country
what does the current account of the balance of payments usually contain?
two main sections: the money value of the exports and the money value of the imports
what are the main macroeconomic policies?
Achieve high and sustained economic growth
Reduce unemployment
Achieve low and stable inflation- UK 2%
Satisfactory balance of payments
How are macroeconomic factors measured?
Economic growth – GDP
Unemployment – claimant count and labour survey
Satisfactory balance of payments – flows of money value in and out of the country
what are index numbers
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
what is purchasing power?
Purchasing power is the financial ability to buy products and services
what is the market basket?
The market basket is a permanent mix of goods and services that are consistently purchased and sold in an economic system
what does the most common measurement of inflation look at ?
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
What is the difference between CPI and RPI?
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
what does CPI stand for and what does it measure?
consumer price index
CPI is a price index that measures the price changes in a basket of goods that a consumer tends to face
how do we calculate CPI?
CPI = Price of new market basket / price of market basket in base year x 100
Fiscal debt
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.)
public debt
‘Public debt’ - governments debt
