Measurement of macroeconomic performance

Question 1

GDP

Answer 1

GDP is the value of all newly produced final goods and services produced in an economy within a given time period. GDP can be analysed in terms of the output produced by different industries in the economy, or alternatively by expenditure on goods and services made by households, businesses and the government.

Question 2

GDP per capita

Answer 2

GDP/Population

Question 3

Recession

Answer 3

A recession is a significant decline in real economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale and retail sales. Recessions are often associated with a steep decline in the level of business and household (consumer) confidence. The International Monetary Fund estimates that economies are in a state of recession roughly 10-12% of the time..

Question 4

Inflation

Answer 4

Inflation is a sustained rise in an economy’sgeneral price level. This means that, on average, the prices of goods and services are going up over time. As the price level rises each pound or dollar buys fewer products. This means the real value or purchasing power of money falls.

Question 5

basket of goods

Answer 5

The consumer price index (CPI), a common measure of inflation, measures the price change over time for a basket of goods and services. The basket is representative of consumer spending patterns, and the change in its price represents the rate of inflation faced by consumers as a whole.

Question 6

ILO

Answer 6

A survey which asks – are you unemployed and actively seeking work?

Question 7

economically innactive

Answer 7

The economically inactive are defined as people not in employment who have not been seeking work within the last 4 weeks and/or are unable to start work within the next 2 weeks

Question 8

index numbers

Answer 8

A measure of the average level of prices, quantities or other quantifiable characteristics relative to their level for a defined reference period or location. It is usually expressed as relative to 100 (for example, 105 would be an increase of 5 per cent) where 100 is the value for the reference period or location

Question 9

circular flow of income

Answer 9

The Circular Flow of Income is an economic model showing how money flows through the economy.
The circular flow model demonstrates how money moves from producers to households and back again in an endless loop.
In an economy, money moves from producers to workers as wages and then back from workers to producers as workers spend money on products and services.
The models can be made more complex to include additions to the money supply, like exports, and leakages from the money supply, like imports.
When all of these factors are totaled, the result is a nation’s gross domestic product (GDP) or the national income.
Analysing the circular flow model and its current impact on GDP can help governments and central banks adjust monetary and fiscal policy to improve an economy.

Question 10

Role of MPC of bank of England

Answer 10

Monetary Policy Committee (MPC) decides what monetary policy action to take. The MPC sets and announces policy eight times a year (roughly once every six weeks). The MPC has nine individual members. Before they decide what action to take, they hold several meetings to look at how the economy is working.

Question 11

Macroeconomic objectives

Answer 11

Stable low inflation - the Government’s inflation target is 2.0% for the consumer price index.
Sustainable growth – growth of real gross domestic product – sustainable in keeping inflation low and reducing the environmental impact of growth.
Improvements in productivity – this is designed to improve competitiveness and global trade performance
High employment - the government wants to achieve an increase employment and eventually a situation where all those able and available can find meaningful work
Rising living standards and a fall in relative poverty – cutting child poverty and reducing pensioner poverty.
Sound government finances - including control over state borrowing and the total national debt

Question 12

transfer payments

Answer 12

A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it.

Question 13

national income

Answer 13

National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time.

Question 14

weighted index numbers

Answer 14

A weighted index is an ‘average’ index, made up of a combination of other indices - good examples are the Human Development Index and the Consumer Prices Index.

Question 15

economic activity

Answer 15

the production, distribution and consumption of goods and services

Question 16

Purchasing power parity

Answer 16

compares economic growth and standards of living in different countries with a common currency/basket of goods approach.