Unit 9 - The Measurement Of Macroeconomic Performance

Question 1

Policy objectives

Answer 1

A target or goal that policy-makers aim to ‘hit’

Question 2

Short-run economic growth

Answer 2

Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy.

Question 3

Long-run economic growth

Answer 3

An increase in the economy’s potential level of real output, and an outward movement of the economy’s production possibility frontier.

Question 4

Gross domestic product (GDP)

Answer 4

The sum of all goods and services, or level of output, produced in the economy over a period of time e.g. 1 year.

Question 5

Real GDP

Answer 5

A measure of all the goods and services produced in an economy, adjusted for price changes or inflation. The adjustment transforms changes in nominal GDP, which is measured in money terms, into a measure that reflects changes in the total output of the economy.

Question 6

Nominal GDP

Answer 6

GDP measured at the current market prices, without removing the effects of inflation.

Question 7

Eurozone

Answer 7

The name used for the group of EU countries that have replaced their national currencies with the euro. Before 2019 , 19 of the them 28 EU countries were in the eurozone, though this may change in future years.

Question 8

Recession

Answer 8

In the UK and many other countries, a recession is defined as 6 months or more of negative economic growth or declining real national output.

Question 9

full employment

Answer 9

According to beveridge’s definition, full employment means 3% or less of the labour force unemployed. According to the free-market definition, it is the level of employment occurring at the market- clearing real-wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting to work.

Question 10

Claimant count

Answer 10

The method of measuring unemployment according to those people who are claiming unemployment related benefits ( Jobseeker’s Allowance )

Question 11

Labour force survey

Answer 11

A quarterly sample survey of households in the uk. Its purpose is to provide information on the Uk labour market. The survey seeks information on respondents’ personal circumstances and their labour market status during a period of 1-4 weeks.

Question 12

Inflation

Answer 12

A persistent or continuing rise in the average price level.

Question 13

Deflation

Answer 13

A continuing tendency for the average price level to fall.

Question 14

Disinflation

Answer 14

When the rate of inflation is falling, but still positive.

Question 15

Price index

Answer 15

An index number showing the extent to which a price, or a ‘basket’ of prices, has changed over a month, quarter or year, in comparison with the price(s) in a base year

Question 16

Consumer price index

Answer 16

The official measure used to calculate the the rate of consumer price inflation in the UK. It calculates the average price increases of a basket of 700 different consumers goods and services

Question 17

Retail price index

Answer 17

A measure formerly used to calculate the rate of consumer price inflation in the UK.

Question 18

Indexation

Answer 18

The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of a price index.

Question 19

Balance of payments

Answer 19

A record of all the currency flows into and out of a country in a particular time period.

Question 20

Current account

Answer 20

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows ( previously known as ‘income flows and transfers’)

Question 21

Exports

Answer 21

Domestically produced goods or services sold to residents of other countries.

Question 22

Imports

Answer 22

Goods or services produced in other countries and sold to residents of this country

Question 23

Balance of trade

Answer 23

The difference between the money value of a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments on current account.

Question 24

Balance of trade deficit

Answer 24

When the money value of a country’s imports exceeds the money value of its exports.

Question 25

Balance of trade surplus

Answer 25

When the money value of a country’s exports exceeds the money value of its imports.

Question 26

Balancing the budget

Answer 26

When government spending equals government revenue ( G = T ).

Question 27

Budget deficit

Answer 27

Occurs when government spending exceeds government revenue (G>T). This represents a net injection of demand into the circulation of flow of income and hence a budget deficit is a expansionary.

Question 28

Trade-off between policy objectives

Answer 28

Although it may be impossible to achieve two desirable objectives at the same time, e.g. zero inflation and full employment, policy-makers may be able to choose an acceptable combination lying between the extremes, e.g. 2% inflation and 4% unemployment.

Question 29

Policy conflicts

Answer 29

Occurs when two policy objectives cannot both be achieved at the same time: the better the performance in achieving one objective, the worse the performance in achieving the other.

Question 30

Keynesian economists

Answer 30

Followers of the economist John Maynard Keynes, who generally believe that governments should manage the economy, particularly through the use of fiscal policy.

Question 31

Pro-free-market economists

Answer 31

Opponents of Keynesian economists, who dislike government intervention in the economy and who much prefer the operation of free markets.

Question 32

Monetary policy

Answer 32

The use by the government and its agent, the Bank of England, of interest rates and other monetary instruments to try to achieve the governments policy objectives.

Question 33

Fiscal policy

Answer 33

The use by the government of government spending and taxation to try to achieve the governments policy objectives

Question 34

Balance of payments equilibrium

Answer 34

A situation in which a deficit or surplus on the current account of the balance of payments is exactly matched by capital inflows or outflows in the other parts of the balance of payments.

Question 35

Macroeconomic indicators

Answer 35

Provides information from recent economic performance for judging the success or failure of a particular type of government policy, e.g. fiscal policy or monetary policy.

Question 36

Index numbers

Answer 36

A number used in an index, such as the consumer prices index, to enable accurate comparisons over time to be made.

Question 37

National income

Answer 37

The flow of new output produced by the economy in a particular period, e.g. a year, measured by the flow of factor incomes

Question 38

National product (national output)

Answer 38

The flow of new output produced by different industries in a particular period, e.g. a year.

Question 39

National capital stock

Answer 39

The stock of capital goods, e.g. buildings and machinery, in the economy that has accumulated over time and is measured at a point in time.

Question 40

Human capital

Answer 40

The skills, knowledge and experience possessed by the population.

Question 41

National wealth

Answer 41

The stock of all goods that exists at a point in time that have value in the economy.

Question 42

Consumption

Answer 42

Total planned spending by households on consumer goods and services produced within the economy.

Question 43

Hidden economy ( informal economy, underground economy and black economy)

Answer 43

All of the economic transactions conducted in cash which are not recorded in the national income figures because of tax evasion.

Question 44

Purchasing power parity (ppp) exchange rates

Answer 44

Rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries.