Measurement of Macroeconomic Performance Flashcards
4 Beneits of National income stats
Report card
Government use to implement economic policy
Businesses build forcasting models
Evaluate living standards
Problems with RGDP as a measure of growth
Solution
Varied sources
Informal economy/ dark figures- unliscened businesses undeclared income
Only taker into account Final Value
Problems with RGDP as a measure of living standards- 2
Solution
Single measure- only income
Doesn’t provide data for income distribution
Composition of output- defence output doesnt immediatly improve living standards
Ignores remittance income (earened abroad)
Includes profit made by MNCs based in UK (repatriated to domestic country)
Green GDP= RGDP- environmental costs
4 Causes of short run growth
Cut in interest rates
Fall in taxation- corporate + personal
Boost GS- infrastructure spending, increasing incomes, larger multiplier
Weakened exchange rate- increased international competitiveness
Policies to weaken exchange rate
Reduced interest rates = increased hot money outflows
Increased money supply- Quantitative easing
Selling domestic reserves
Causes of Long run growth
Gov spending on education and training
Gov spending on infrastructure
Gov subsidies/ tax allowances encouraging investment
Reducing corporate + income tax (^I, Trickle down effect)
Privatisation
Deregulation
Trade liberalisation
Demand side shocks
Housing or stock market crash
Sudden fall in investment
Sudden fall in foreign spending on exports
Banking or financial crisis
Supply side shocks
Sudden rise in the price of Oil
Rise in indirect taxes
Benefits of Economic growth
Income rise
Higher profits
Fiscal dividend/ windfall- tarrifs from more imports, tax revenues
Costs of Economic growth
Demand pull inflation
Not all incomes increased
Increased current account deficit
Evaluation of growth
Sustainable
Inclusive
Sustained
Types of disequilibrium unemployment
Cyclical
Real wage
Define cyclical unemployment
Unemployment resulting from recession phase of cycle due to insufficient demand for goods and services
Define Real wage unemployment
Wages set higher than equilibrium, businesses reduce size of workforce
Types of equilibrium unemployment
Structural unemployment
Frictional unemployment
Seasonal unemployment
Define structural unemployment
Immobility of labour due to a mismatch of skills between industry’s
Causes of structural unemployment
Loss of comparative advantage
Technological advancements
Poor education
Define natural rate of unemployment
Indicates when labour market in equilibrium there will be some unemployment, best rate is full employment in labour market
Determinants of natural rate of unemployment
Welfare benefits
Excessive regulation = less risk taking
Under provision of transport and quality infrastructure
Costs of unemployment
Lost output
Deterioration of gov finances
Social costs
Benefits of employment
Easier for firms to find workers
Workers find best job to fit needs
Reduce inflationary pressure
Evaluation of unemployment
Level
Duration
Type
Distribution
Problems with CPI
Basket of goods used might not reflect consumption habits
Prone to seasonal fluctuations
Housing costs not included
Causes of demand pull inflation
Cut in interest rates
Reduce marginal rate of income tax, or increase tax free allowance
GS boost
Weakened exchange rate
Causes of cost push inflation
Rise in comodity prices
Rise in wages
Rise in VAT/ indirect taxes
Higher import prices
Costs of inflation
Purchasing power falls
Savings value eroded
Reduced international competitiveness
Wage price spiral
Fiscal drag
Benefits of inflation
Increased pay
Government finances improve
Reduce value of real debt (lender holds less purchasing power)
Evaluation of inflation
Cause
Actual
Stability
Anticipated
Negatives of deflation
Delayed spending
Increase in real debt value
Positives of delfation
If generated from supply side relieves cost pressures, lower prices
Evaluation of Deflation
Cause (supply side)
Anticipated (delayed spending)
Measures of growth + living standards
GDP- total value of all goods + services produced
GDP/ Capita- value per person
GNI = GDP + net factor income
Net factor income
Income earned by domestic workers abroad - income earned by MNCs/ foreign workers at home
Green GDP
Accounts for environmental costs of production
GGDP = GDP - environmental costs
Attempt to overcome issues measuring growth + development
Subjective, politically sensitive
