The Measurement Of Macroeconomic Performance

Question 1

Name the 4 main aims of a governments objective economic policy

Answer 1

Economic Growth
Unemployment
Inflation
Balance of Payments

Question 2

In terms of government economic policy objectives what is the aim of economic growth

Answer 2

To be steady and controlled, it’s the most impossible factor. In the Uk the long run trend of economic growth is 2.5%.

In emerging economies, governments may aim to increase economic development before economic growth which aims to improve living standards and increase life expectancy.

Question 3

In terms of government economic policy objectives what is the aim of price stability

Answer 3

It’s measured by inflation using CPI, it should be 2%

This aims to provide price stability for firms and consumers which helps them make decisions and boosts the economy

Inflation should be low and stable

Question 4

In terms of government economic policy objectives what is the aim of balance of payments

Answer 4

To be satisfactory and around 50/50 aka equilibrium

This is so there is not a large deficit

A BOP on the current account means that the country can substantially finance the current account which is crucial for long term growth.

Question 5

In terms of government economic policy objectives what is the aim of unemployment

Answer 5

To be low, and have as many potentially active workers as possible employed.

They account for frictional unemployment by making the target 3%.

The labour force should also be employed in productive fields

Question 6

What is economic growth?

Answer 6

The LONG TERM expansion of a country’s production potential

Question 7

How is short term economic growth measured?

Answer 7

Can be measured by the annual % change in real national output (GDP). An example would be using idle resources such an unemployed people and factories, which takes up slack in the economy

Question 8

What is an index number

Answer 8

A number which is an economic data figure reflecting price or quantity

Question 9

Why are index numbers used

Answer 9

Enables us to quickly assess changes in a sense of economic data, they tell us what is happening to variables like inflation.

Question 10

Name types of data that is commonly used to assess macro performance of an economy

Answer 10

Real gdp per capita
CPI
unemployment rate
Trade balance in goods and services
Government spending and tax revenues
National debt (government debt)
Monetary policy / inflation and interest rates
Labour productivity

Question 11

How to measure economic growth

Answer 11

A measure of a countries value of output
Usually expressed as a % decrease/increase of a previous time eg. Year

Question 12

An issue with measuring economic growth by the value of goods.

Answer 12

It may be dependant on other factors like if GDP rose from 800 billion to 880 billion has the economy really grown by 10% or has prices rose.

Question 13

What is aim of the government economic policies objectives?

Answer 13

The aim is to provide macro stability

Question 14

Other potential objectives

Answer 14

Balanced government budget, which keeps control of debt and allows government to borrow cheaper in future

Greater income equity, less difference between rich and poor.

Question 15

What are some trade offs / potential conflicts from economic growth.

Answer 15

Economic Growth vs Inflation

Economic Growth vs current account.

Economic Growth vs Budget Deficit

Economic Growth vs Environment

Unemployment vs Inflation

Question 16

Economic Growth vs Inflation

Answer 16

AD increasing faster than AS causing price levels to rise

Question 17

Economic Growth vs current account

Answer 17

during economic growth more money is spent by consumers and that leads to imports increasing. This worsens the current account.

Question 18

Economic Growth vs the Government Budget Deficit

Answer 18

Reducing a budget deficit requires less expenditures and more tax revenue, this would decrease AD and as a result lessen economic growth

Question 19

Economic Growth vs Environment

Answer 19

High rates of economic growth are likely to lead to higher levels of negative externalities such as pollution and the usage of non renewable resources. This is due to more production which is associated with carbon dioxide emissions.

Question 20

Unemployment vs Inflation

Answer 20

In the short run there is a trade off shown by Phillips curve, as EG increases unemployment falls due to more jobs being created which causes wages to increase and therefore higher consumer spending and the price in return increases.

Question 21

How might these trade offs of economic objectives not be damaging.

Answer 21

Through the usage of supply side policies

Question 22

How is the performance of an economy measured with GDP

Answer 22

GDP measures the quantity of goods and services produced in an economy. So a rise in economic growth means that there is an increase in GDP.

However you to find real GDP you have to take off inflation increase so if GDP rose by 4% and inflation by 2%, real GDP is 2%

Question 23

How is the performance of an economy measured with GDP per capita

Answer 23

Real GDP divided by the population of a country, capita is another word for head so it’s measured the average output per person in an economy. This is useful for comparison of other countries.

Question 24

How is the performance of an economy measured with CPI / RPI

Answer 24

Measures of inflation in the uk

CPI measures household purchasing power with the family expenditure survey, the survey finds out what families spend their money on. From this a basket of goods is created. The goods are weighted depending on how much income is spent on them. Each year it’s updated based on patterns

RPI is also inflation and it measures things that CPI doesn’t such as housing costs like mortgages and council tax this is why RPI has a higher value than CPI

Question 25

How is the performance of an economy measured with unemployment

Answer 25

The claimant court, this counts the number of people which claim employment related benefits.

ILO and LFS, it asks people if they meet certain criteria, been out of work for 4 weeks, able and willing to start work in 2 weeks, workers should be available for 1 hour per week

Question 26

How is the performance of an economy measured with productivity

Answer 26

Productivity is output per worker per period of time. It measures how efficient production is. Productivity increases if more output can be produced with fewer units of inputs

Question 27

The balance of payments on current account

Answer 27

The balance of payments is a record of all financial transactions made between consumers firms the government from one country to another.

It states how much is spent on imports and the value of exports is

Question 28

What are exports

Answer 28

Goods and services sold to foreign countries and are positive in the balance of payments. This is because they are an inflow of money.

Question 29

What are imports?

Answer 29

Are goods and services bought from foreign countries and they are a negative on the BOP they are an outflow of money.

Question 30

How are index numbers calculated and interpreted?

Answer 30

They are used to make comparisons of years and measure the magnitude over time

A base year is used and then compared to other years

Question 31

How does the calculation of CPI work

Answer 31

Different items in the food basket have different weights. Like food will weigh more than clothes since consumers spend more of their money on food than clothes.