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econs(macro) > SOL & Macroeconomic Indicators > Flashcards

SOL & Macroeconomic Indicators Flashcards

1
Q

What are the government’s Macroeconomic aims to improve the country’s SOL?

A

1) Sustainable and inclusive economic growth rate;
2) Price Stability;
3)Full Employment; and
4) Favourable position of balance of trade

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2
Q

What is the definition of Standard of Living (SOL)?

A

Standard of Living (SOL) reflects the well being of an average person in a country. It includes material and non-material well-being.

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3
Q

What does Material well-being refer to?

A

Material well-being refers to the quantity of goods and services available to the average person in a country

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4
Q

What does Non-material well-being refer to?

A

Non-material well-being examines the quality of life of an average person in a country.
(This includes the number of working hours per period, leisure time, quality of physical environment, life expectancy, etc.)

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5
Q

What is the formula for Real GDP Per Capita?

A

Real GDP per capita = Real GDP/Population

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6
Q

What does Real GDP per capita refer to?

A

Real GDP per capita refers to the income and expenditure of the average person in the economy

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7
Q

How can Income Inequality be measured?

A

-Size distribution of income- how evenly incomes are distributed among the population;
-Functional distribution of income- distribution among different factors of production (e.g. relative shares of wages and profits in national income, higher-paying jobs versus lower-paying jobs, higher rents in some areas than in others); or
-Distribution of income by the recipient- whether by class of person(such as gender, ethnic group) or geographical location

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7
Q

How do you calculate Gini coefficient?

A

Gini coefficient = Area A / Area A + Area B

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7
Q

What does the Lorenz curve represent?

A

The Lorenz curve shows the degree of inequality in the country and is often used to illustrate the extent to which income is distributed unequally in society

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8
Q

What does the 45 degree line (or “Line of Perfect Equality”) represent?

A

The 45 degree line reflects a perfectly even income distribution. A perfectly equal income distribution is one in which everyone has the same income

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9
Q

What does the Gini coefficient represent?

A

The Gini coefficient is a precise way of measuring the position of the Lorenz curve. It is the ratio of the area between the Lorenz curve and the 45-degree line (Area A) to the whole area below the 45-degree line (Area A+B). Therefore, the Gini coefficient will be between 0 and 1, where 0
corresponds to perfect equality and 1 corresponds to perfect inequality.

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10
Q

What is Human Development Index (HDI)?

A

The Human Development Index (HDI) is a composite statistic (index) that reflects a country’s overall SOL.

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11
Q

What are the three main dimensions and relevant indicators used to derive the HDI?

A

Dimension:
1) Health [Indicator: Life expectancy (years)]
2) Knowledge [Indicator: Expected years of schooling (years), Mean years of schooling (years)]
3) Income [Indicator: Real gross national income per capita (PPP$)]

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12
Q

What does Measurable Economic Welfare refer to (MEW)?

A

Measurable Economic Welfare (MEW) adjusts the measure of total national output , to include only items that help improve economic well-being.

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13
Q

What is Economic Growth?

A

Economic growth is generally defined as an increase in the output (or income) level of an economy

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14
Q

What is Sustained Economic Growth?

A

Sustained Economic Growth refers to the rate of growth that can be maintained over a period of time without increasing inflationary pressures i.e. non-inflationary economic growth

It is achieved simultaneously when actual economic growth (increase in AD) and potential economic growth (increase in LRAS) are achieved

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15
Q

What is Sustainable Growth?

A

Sustainable Growth indicates a strong and stable rate of growth that can be maintained without creating other significant economic problems (such as depleted resources and environmental issues or large debts), particularly for future generations

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16
Q

What is Inclusive Growth?

A

Inclusive Growth indicates a strong and stable rate of growth without resulting in worsening of income or wealth inequality

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17
Q

What are the key economic indicators for the government’s macroeconomic aims?

A

-Inflation rate (price stability
-Full employment (unemployment rate)
-Balance of Trade (Balance of Trade)
- 1)Economic growth rate (Real GDP/GNI growth rate) [Sustainable and Inclusive Economic Growth]
2)Gini coefficient [Sustainable and Inclusive Economic Growth]

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18
Q

What is functional distribution of income?

A

Distribution among different factors of production

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19
Q

What would be the Gini coefficient if income is distributed equally?

A

zero

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20
Q

What is Gross Domestic Product (GDP)?

A

Gross Domestic Product (GDP) refers to the total money value of all final goods and services produced within the country’s geographical boundary during a given period of time

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21
Q

What is Gross National Income (GNI)?

A

Gross National Income (GNI) refers to Gross Domestic Product (GDP) + incomes of residents that is earned abroad - incomes earned domestically and paid to foreigners

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22
Q

What is Nominal National Income?

A

Nominal national income refers to national income measured at current prices.

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23
Q

What is Real National Income?

A

Real national income refers to national income measured at constant or base year prices

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24
Q

What is a Deflator?

A

A deflator is an index number that shows the average percentage change in the prices of goods and services that constitute the national output

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25
Q

How do you estimate the changes in real national income?

A

percentage change in real GDP = percentage change in nominal GDP - percentage change in price level

NOTE: percentage change in price level can be either thee rate of inflation or percentage change in GDP deflator

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26
Q

What is Personal Disposable Income?

A

Personal Disposable Income is the amount of income available for household spending after deductions and adding other benefits

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27
Q

What are Deductions?

A

Deductions may include personal income tax and contributions to national insurance

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28
Q

What are Benefits?

A

Benefits may include unemployment benefits, government handouts, pensions, and child benefits

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29
Q

What are the uses of National Income Statistics?

A

a) Measure of Economic performance
b) Estimate and Assess the Material SOL of an economy
c) Assist government’s Planning
d) Assist Firm’s Planning
e) Assist International Economic Planning

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30
Q

What are the difficulties in measuring National Income?

A

a) Estimation of Values
b) Omissions in measurement of National Income
c) Obtaining Reliable and Complete Information

31
Q

Note:
economic growth will only lead to an increase in SOL over the same period of time if the extent of economic growth exceeds the growth in population

A

.

32
Q

What are some examples of economic policies?

A

fiscal, monetary, supply-side, and trade policies

33
Q

How do firms use national income to assist their planning?

A

Firms use national income data to identify and evaluate the strategies to increase their profits. National income figures can show the sectors with more significant growth in the economy

34
Q

What are the difficulties in using national income to compare SOL over time?

A

a) Changes in Price Level
b) Changes in Size of Population
c) Composition and Quality of Goods and Services Produced
d) Distribution of National Income
e) Leisure and Intangibles affecting Quality of Life and Non-Material SOL

35
Q

How do you tackle change in price level when using national income to compare SOL?

A

Use real figures rather than nominal figures due to it already being adjusted for inflation, i.e. constant pricing

36
Q

How do you tackle change in size of population when using national income to compare SOL?

A

Calculate for real GDP per capita instead.

Real GDP per capita in current year= Real GDP in current year/Population size in current year

37
Q

When is Economic Growth considered unsustainable?

A

When National Income increases but at the expense of increased negative externalities

38
Q

What is Purchasing Power Parity (PPP)?

A

The national income Purchasing Power Parities (PPP) is the exchange rate that would ensure equal purchasing power of a same amount of currency across countries.

39
Q

What is used to compare SOL over time ?

A

Real GDP

40
Q

What is used to compare SOL over space?

A

GDP (PPP)

41
Q

What are the difficulties in measuring National Income Statistics to compare SOL across countries (space) ?

A

a) Different currencies and cost of living
b) Difference in Size of Population
c) Difference in Accounting Practices
d) Difference in Composition and Quality of Output of Countries
e) Different size of Non-Monetary Sector
f) Differences in Income Distribution
g) Leisure and Intangibles affecting the Quality of Life

42
Q

What are included in social indicators?

A
  • The current state of health;
  • Educational attainments;
  • Crime rates;
  • Environmental quality; and
  • Stress levels and time for leisure
43
Q

What is Price Stability?

A

The general price level (GPL) rises slowly and predictably over time, i.e. a low and stable inflation rate

44
Q

What is Inflation?

A

Inflation is defined as a sustained increase in the general price level (or overall prices) in the economy.

45
Q

What is Deflation?

A

Deflation is defined as periods of falling overall prices in the economy.

46
Q

What is Consumer Price Index (CPI) ?

A

The Consumer Price Index (CPI) is an index number for the price level. It is the weighted average of prices of a basket of goods/services purchased by the average household in a specific time period

47
Q

What is the formula for Inflation Rate?

A

Inflation Rate = [(CPI2 - CPI1)/ CPI1] *100

CPI2 - is the CPI in the second period
CPI1 - is the CPI in the previous period

48
Q

Note:
- A positive inflation rate means a rise in prices
- A rise in inflation would mean a faster increase in prices
- A fall in inflation, also known as disinflation, would mean a slower price increase
- A negative inflation rate, otherwise known as deflation, would mean falling prices

A
49
Q

What are the uses of CPI and Inflation Rate?

A

a) Measure of Economic Performance
b) Estimate and Assess the Standard of Living

50
Q

What does it mean when an economy has high inflation rate?

A

Its economy is over heating or growing too fast

51
Q

What happens when Inflation rate exceeds the increase in wages?

A

Real wages will fall, resulting in people being able to buy fewer goods and services, resulting in a fall in material SOL

52
Q

What is Full Employment?

A

Full employment is when there is no involuntary unemployment, i.e. when all job seekers can find employment. Empirically, the economy is deemed to have reached full employment when total number of job vacancies is equal or greater than the total number of unemployed

53
Q

What is Producer Price Index (PPI)?

A

The Producer Price Index measures the average percentage change in the prices of goods bought by PRODUCERS

movements in PPI usually leads to movements in CPI in the later months

54
Q

What is the Gross Domestic Product (GDP) deflator?

A

The Gross Domestic Product (GDP) deflator measures the average percentage change in prices of goods and services produced domestically

55
Q

What is Unemployment?

A

Unemployment represents the number of people of working age who are willing and able to work but are not able to find suitable jobs

56
Q

What defines an economically active population (aka labour force) ?

A
  • Persons who have jobs (employed); and
  • Persons without jobs but actively seeking for work (unemployed).
57
Q

What defines a economically inactive population?

A
  • full-time students, homemakers, retirees, and physically or mentally disabled persons;
  • voluntary unemployed persons (persons who choose not to take up employment); and
  • discouraged workers (persons who have been discouraged by a long, unfruitful job search, and given up finding employment).
58
Q

Note: Economically inactive individuals are NOT counted as part of the unemployment
figures, as they are not willing or not able to work. Hence, they are excluded from the
unemployment figures and are typically counted as not in the labour force.

A
59
Q

What is the formula for unemployment rate?

A

Unemployment rate = (number of unemployed/ labour force) * 100%

Note: The denominator is the size of the labour force, i.e. those who are willing and able
to work at the legally employable age. The denominator is not the total population, i.e.
it does not include full-time students, homemakers etc.

60
Q

Why is high unemployment rate bad for the economy?

A
  • Wastage of resources;
  • Financial hardship for the unemployed as they are not able to enjoy goods and services;
  • Social hardship for the unemployed; and
  • Social unrest
61
Q

What is the formula for Labour Force Participation Rate?

A

Labour Force Participation Rate = (Labour Force/ Working age Population) *100%

62
Q

What is Labour Productivity?

A

Labour Productivity is defined as the output per man-hour

63
Q

How do countries improve labour productivity?

A
  • Training of Labour
  • improving the quantity of capital per worker
  • improving the output per man-hour
64
Q

What is underemployment?

A

Underemployment implies that resources are not being used to their maximum potential

65
Q

What are the uses of Unemployment (Employment) Data?

A

a) Measure of Economic performance
b) Measure of SOL

66
Q

What is the definition of Balance of Payments (BOP) ?

A

The Balance of Payments (BOP) of a country is a statement of all the international transactions of a country with the rest of the world over a period of time, usually a year

67
Q

What is current account balance made up of?

A

Current Account Balance = Trade Balance [Visible Balance (Goods) + Invisible Balance (Services)] + Income Balance + Net Current Transfer

68
Q

What is included in the current account?

A
  • Balance of Trade
  • Net income flows
  • Net income transfers
69
Q

What is Balance of Trade?

A

Balance of Trade records the import and export of goods & services. The balance of trade shows the difference between the values of exports and imports of goods & services goods

70
Q

What is Net Income Flows (Income Balance) ?

A

Net income flows consists of investment income in rent, interest, profits, and dividends flowing into and out of the country

71
Q

What are Net Current Transfers?

A

Net Current Transfers are unilateral flows to and from abroad by citizens or the government. These include government contributions to and receipt from international organizations and international money transfer by private individuals (remittances of foreign workers)

Note: Current transfers are not linked to capital assets or liabilities

72
Q

What is the Capital and Financial Account about?

A

The Capital and Financial Account track the country’s changes in assets and liabilities. In the capital and financial account, a rise in assets in a country will be recorded as a credit (+), while a rise in liabilities will be recorded as a debit (-).

73
Q

What are the key components of the Capital and Financial Account?

A
  • Short-term Capital Flows; and
  • Long-term Capital Flows
74
Q

What are Long-term Capital Flows?

A

Long-term Capital Flows include FDI, the purchase and sale of real assets such as manufacturing plants or acquiring existing firms. It does not mean the importing or exporting of machinery and equipment. Such an investment involves the firm acquiring a lasting (long term) interest and a large degree of influence or control over the management of an enterprise in another economy.

75
Q

What are Short-term Capital Flows?

A

Short-term monetary flows are also known as ‘hot money’. These consist primarily of various types of short-term investments or monetary flows between Singapore and the rest of the world. Examples include cross border loans, currency and bank deposits, inter-company debts, deposits or loans with non-bank financial institutions (merchant banks, financial companies)

76
Q

What is the formula for BOP?

A

BOP = Current Account (A) - Capital and Financial Account (B) + Net Errors (C)

77
Q
A

econs(macro) (13 decks)

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