The measurement of the macroeconomic performance Flashcards
What is aggregate demand?
Total demand in the economy
What is the equation for aggregate demand?
C + I + G + (X-M)
What is aggregate supply?
The total value of goods and services supplied in an economy
What is equilibrium?
Aggregate demand = aggregate supply
What is the main aim for any government?
To improve the wellbeing of citizens
What is economic growth?
The capacity of the economy to produce more goods and services over time
What is GDP?
The total value of goods and services produced in an economy
How can you measure output in an economy?
GDP
What is actual growth?
The performance of an economy at a particular point in time
What is trend growth?
The average performance of an economy over time
What is a negative output gap?
Where the economy is producing less than its trend output
What is a positive output gap?
When actual GDP exceeds trend GDP increasing inflationary pressure
In a positive output gap, what is employment likely to be?
High
What is a trade off?
Where one macroeconomic objective has to be curtailed in favour of another objective
What are imports?
Goods or services purchased from abroad
What are exports?
Goods or services sold abroad
What is employment?`
Where labour is actively engaged in a productive activity usually in exchange for payments such as wages
What is unemployment?
Those without a job but who are seeking work at the current wage rates
What does unemployment represent?
A waste of human capital
What are the consequences of unemployment? (CILGB) (5)
A fall in consumer confidence A fall in income Lower standard of living Falling government tax revenue Increased spending on benefits
What is inflation?
A sustained increase in the general price level
When actual growth exceeds trend, what happens to labour?
It becomes scarce, leads to higher wage rates
Why is inflation an important measure of performance?
It indicates whether the UK price is competitive internationally
Will high inflation make the UK more or less internationally competitive? Why>?
Less, because our prices are too high therefore consumers will go to other cheaper countries
What is exporting?
The sale of goods and services to a foreign country - generates income for the home country
What is importing?
The purchase of goods and services from abroad - leads to expenditure for the home country
What are economic indicators?
Economic statistics that provide information about the expansions and contractions of business cycles
What is nominal GDP?
GDP not adjusted for inflation
What is real GDP?
GDP that is adjusted for inflation
What is GDP per capita?
GDP/ population
What are index numbers?
A weighted average of a group of items compared to a given base value
What is GDP used for? Why?
To measure living standards
They show by how much the income of the average person has risen over time
What are the methods to measure inflation? (2)
CPI
RPI
Which inflation measurement includes house prices?
RPI
Why did CPI replace RPI?
It is easier to compare with that of the EU’s countries
