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Macro Economics (prophett) > Measuring macroeconomic performance (order of delivery) > Flashcards

Measuring macroeconomic performance (order of delivery) Flashcards

1
Q

What are the 5 main economic indicators (objectives)?

A

-price stability
-(sustainable) economic growth
-(low) unemployment
-(stable) government budget position
-(stable) balance of payments position

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2
Q

Define “price stability”

A

having a low level of inflation and/or deflation

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3
Q

Define “economic growth”

A

The annual % increase in real GDP

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4
Q

when is economic growth “sustainable”?

A

when it can be maintained at the current rate for a long period of time

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5
Q

what is the UK’s inflation target for 2025?

A

2% CPI

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6
Q

What is GDP? (gross domestic products)

A

GDP is a measure of output, income or expenditure of an economy in a given time period

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7
Q

what are real GDP figures adjusted to consider

A

Real GDP adjusts for inflation

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8
Q

how do you calculate an increase/ decrease in real GDP?

A

GDP% increase - inflation = real GDP (eg. +6% - 5% = +1%)

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9
Q

what is GDP per capita and how is it calculated

A

it is the GDP per person

GDP per capita = GDP/ population

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10
Q

What does calculating GDP per capita allow?

A

It allows comparisons to be made between countries to indicate:
-income levels
-living standards
GDP per capita also allows for comparison between economic and population growth to be made
Eg. if real GDP increases by 1% and population increases by 3%, the GDP per capita decreases be 2%

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11
Q

define “unemployment”

A

when a person is not in employment, education, or training and is actively seeking employment while claiming JSA

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12
Q

what is JSA?

A

Job seeker’s allowance

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13
Q

why would the government try to keep unemployment low?

A

-people will have more income
-therefore they’re likely to spend more
-this creates demand in the economy
-Employed people also pay income tax
-this puts the government budget position more towards a
surplus

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14
Q

what does the government budget position look at?

A

the gov budget position looks at the difference between:
-tax revenue being brought in
-government spending
(in a given time period)

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15
Q

what is a government budget deficit?

A

when the government spends more money than it receives

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16
Q

what is a government budget surplus?

A

when the government receives more money than it spends

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17
Q

how does debt relate to the gov budget position?

A

whenever there is a deficit, the national debt increases

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18
Q

what is “national debt”?

A

national debt = the government’s debt

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19
Q

why can having too much debt be problematic?

A

The money has to be repaid with interest

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20
Q

what happens if national debt increases too much?

A

It become more difficult for the government to borrow money (the interest rate for their future loans will increase until debt it paid back
-This will lead to an increase in interest rates for people and
businesses in the country

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21
Q

what does the balance of payments position look at?

A

The balance of payments position looks at the difference between:
-money entering the country (from sales of exports)
-money leaving the country (to pay for imports)

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22
Q

when does a balance of payment surplus mean?

A

value of imports < value of exports

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23
Q

when does a balance of payment deficit mean?

A

value of exports < value of imports

24
Q

the UK has a persistent balance of payment deficit. Why would they want to stop this from getting out of control?

A

if there are more imports than experts, this means that there is more money leaving the UK than there is coming in
-This will slow down economic growth

25
Q

when is economic growth positive?

A

when real GDP increases

26
Q

define inflation

A

the annual increase in the general price level (the % increase in CPI)

27
Q

what metric is used to measure inflation?

A

CPI (consumer prices index)

28
Q

how is CPI calculated?

A

using a weighted basket of goods (& services).
to work out CPI:
-price increase of a good x percentage of income spent
-repeat this for all the goods in the basket
-add all the results together to get the CPI
Eg.
item Price increase(%) %of income spent
food 5 x 40% = 2
fuel 20 x 10% = 2
clothes 10 x 50% = 5
CPI = 9%
*note - items can be inflated by alot, but if the % of income spent is very low, the item won’t change the CPI by alot

29
Q

what does “weighted” mean, under the context of calculating inflation?

A

“weighted” means that the goods & services that the average family spends a greater proportion of their income on are given a larger significance in the inflation calculation
(eg. food and water are more significant than light bulbs & stamps)

30
Q

What is RPI?

A

Retail prices index:
similar to CPI but the RPI includes:
-house prices
-mortgage costs
-council tax
while the CPI doesn’t

31
Q

why did the UK government start measuring inflation using the CPI rather than the RPI?

A

Because house prices were too volatile for how heavily they were weighted in the RPI
This made the RPI too dependent on one good to be used as a reliable metric of the general price increases

32
Q

what is the “claimant count”?

A

the amount of people claiming JSA
(UK = 1.55M people (Aug 2023))

33
Q

Define “Labour force survey”

A

A measure similar to claimant count but it also includes people who are ineligible to claim JSA
(this is an unofficial measure not taken by the government)

34
Q

Define “unemployment rate” and “working population”

A

unemployment rate = The % of the working population that are unemployed (4.3% - July 2023 (UK))
working population = those of working age (18-65 in the UK)

35
Q

Define”employment rate”

A

The % of people who are employed (75.7% - June 2023(UK))

36
Q

employment rate + unemployment rate != 100%
Why?

A

not everyone is either employed or unemployed
>some people are not working or seeking employment
>people who are neither employed or unemployed are deemed “economically inactive”

37
Q

who are “economically inactive” people? (name examples & define)

A

people who are neither employed or unemployed are deemed “economically inactive”
>Eg. housewives, wealthy people, those not working just before retirement age

38
Q

how do you calculate the balance of payments on current account?

A

balance of payments on current account
=
balance of trade + primary balance + secondary balance

39
Q

how do you calculate the visible balance of payments?

A

visible balance
=
value of goods exported - value of goods imported

40
Q

how do you calculate the invisible balance of payments?

A

Invisible balance
=
value of services exported - value of services imported

41
Q

How do you calculate balance of trade?

A

balance of trade = visible balance of payments + invisible balance of payments

42
Q

how do you calculate primary balance of payments?

A

Primary balance of payments
=
profits from UK firms - profits from overseas firms
overseas coming into UK coming into UK

43
Q

what is secondary balance of payments?

A

The secondary balance of payments is money moving between countries with no corresponding trade
(Eg. foreign aid)

44
Q

“the UK has a visible balance ________ and an invisible balance ________. as the deficit is greater than the surplus, the UK has a balance of trade _________.”

A

-deficit
-surplus
-deficit

45
Q

what will often occur if you try to achieve different economic objectives at once?

A

Conflicts may arise (achieving one objective could directly make another more difficult to achieve

46
Q

What may happen if the gov decides to spend more on education and infrastructure?

A

+extra demand in economy created, leading to more economic growth:) employment is lower as more gov spending creates additional jobs :)
-This extra demand will also lead to increased inflation :(
+extra gov spending also increases skill level of workers, whilst improved infrastructure will help to reduce business costs
>These long term effects could increase economic growth:) and reduce inflation:)
-increased spending on education and infrastructure would also mean an increase in the.
government budget deficit:(
+with better workers & infrastructure to help businesses to lower their costs, they will have
improved international competitiveness against other international businesses:)
+This increased competitiveness will allow the businesses to potentially bring in more revenue
from abroad, leading to a greater BoP surplus:)

47
Q

how does a conflict exist between trying to achieve a table BoP position and economic growth?

A

as the economy grows:), consumer incomes rise.
>these rising incomes mean an increase in consumer and business demand
>This deteriorates the balance of payments towards a deficit:(

48
Q

What is national income measured by?

A

GDP (GDP = national income = national output = National expenditure)

49
Q

What is the difference between nominal and real income?

A

Nominal figures are the actual amount of money at the time whilst real figures are the amount of money after adjustments for inflation

50
Q

what do national figures show and allow?

A

-national figures show the value of the total income in an economy
-they also allow comparisons to be made between different countries and after time

51
Q

benefits of economic growth

A

+increase in living standards and income levels due to there being more money in the economy (increase in living standards depends on the distribution of wealth in a country)
+more economic activity means that the government will receive more tax revenue and spend less on benefits as more people will be employed

52
Q

Drawbacks of Economic Growth

A

-as economic growth is often caused by increases in demand, excessive inflation could come as an issue along with the growth
-unsustainable economic growth is likely to lead to high inflation, which could reduce real incomes (this may lead to a recession as people would spend less to save money). This makes people worse off in the long run
-increased economic growth may lead to an increase in imported goods & services as average incomes rise. This will lead to a deterioration in the balance of payments position
-Economic growth often has an environmental cost which is neglected - this can have an impact on living standards

53
Q

define disinflation

A

a fall in the rate of inflation (Prices still increasing but at a slower rate

54
Q

what are index numbers

A

index numbers are a way of expressing data by showing each number as a % of a randomly chosen number (base value)

55
Q

how do you calculate an index number?

A

chosen value
——————- x 100 = index number
base value

Macro Economics (prophett) (5 decks)

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