Yr1 The Measurement of Macroeconomic Performance Flashcards
PART 1
THE OBJECTIVES OF GOVERNMENT ECONOMIC POLICY
What are some objectives of the UK government? (6)
- Price stability (CPI inflation 2%)
- Growth in real GDP (real output)
- Falling unemployment
- Higher average living standards (national income per capita)
- Stable balance of payments on the current account EXPORTS
- An equitable Distribution of Income and Wealth
Definition of balance of payments
A record of all of the currency flows into and out of a country in a particular time period
PART 2
MACROECONOMIC INDICATORS
What are the 4 main measures of economic ability?
- GDP per capita
- Inflation
- Unemployment
- Gini coefficient
PART 3
USES OF INDEX NUMBERS
What is the definition of a normal number (current)?
Values that have not been adjusted to take into account of inflation
What is the definition of a real number? (Constant)
Values that have been adjusted to take account of inflation > reflects purchasing power of the currency
What is the definition of index numbers?
A figure reflecting piece of quantity compared with a base value. The base value always has an index number of 100
What is the formula to calculate the base number?
(Year value / base year value) x 100
What is the formula to calculate the % change in index numbers?
(New index number - orig index number) / orig index number x 100
How do you calculate the actual number from the index number?
Figure in base time period x (index number x 100)
What is the formula to find the real value of an index number?
(Nominal value / new price index) x100
PART 4
USES OF NATIONAL INCOME DATA
GDP per capita
1. Definition
2. Data used / collected
3. Advantages
4. Disadvantages
- The total value of goods and services in a country divided by the number of people in the country
- GDP per capita (gross domestic product per person)
3.
- not subjective
- takes into account important factors of an economy - time lag
- figures only show an average
- inequality not shown
- not all countries use the measure
- may not be measured accurately
- doesn’t take into account black market, voluntary work etc
Human Development Index (HDI)
1. Definition
2. Data used / collected
3. Advantages
4. Disadvantages
- A statistical measure that summarises a country’s average achievement in three areas: health, education and standard of living
- mean years of schooling
- life expectancy
- GNI per capita
- objective as uses statistical ranking
- variables are essential for a high standard of living
- not all countries may measure it the same way
- inequality isn’t accounted for
- natural disasters and shocks not accounted for
Misery Index
1. Definition
2. Data used / collected
3. Advantages
4. Disadvantages
- A guide to the economic and social costs that a country faces
- unemployment
- inflation rate
- demonstrates if people can afford their lifestyle
- represents purchasing power
- shows financial struggles on an economy
- quick to measure
- not every country uses it
- doesn’t account for long term effects
- doesn’t look at individuals
- relies on both factors having the same weight
- influenced by other factors
Gross National Happiness (GNH)
1. Definition
2. Data used / collected
3. Advantages
4. Disadvantages
- Measures the quality of a country in a more holistic way and believes the beneficial development occurs when material and spiritual development occurs
- psychological wellbeing
- health
- time use
- education
- cultural diversity + resilience
- good governance
- community vitality
- ecological diversity and resilience
- living standards
3. - measures multiple opinions from the local community
- range in depth factors
- more holistic approach
- complex to measure
- time lag
- cannot get everyone opinions in a large population
- too subjective
Doughnut Economics Model e.g. Amsterdam and Costa Rica
1. Definition
2. Data used / collected
3. Advantages
4. Disadvantages
- Represents the ring of sustainable lifestyle linking to the ecological ceiling and social foundation
- ecological ceiling (9 factors)
- social foundation (12 factors)
- more of a holistic approach
- framework can be adapted for all countries
- allows a more sustainable approach
- moves away from the focus on GDP
- harder for larger countries to work together to create a solution
- not a quantitative or direct figure to measure
- opportunity cost
What is purchasing power parity?
Based on cost of living and inflation when making comparisons between countries which use different currencies it is necessary to convert values, such as national income (GDP)
Two ways:
- using market exchange rates
- using PPP
What are the difficulties with using market exchange rates?
- Exchange rates change quickly
- Market exchange rates are determined by demand and supply of currencies, which reflect changes in import and exports of traded goods and services
What does purchasing power parity mean? and what does it take into account
refers to the quantity of the currency need to purchase a given unit of a good or common basket of goods and services
Takes into account
- inflation
- average price levels
- taxes
- savers
- spenders
- individual differences in countries value
Problems of making international comparisons across countries (5)
- Types of producers
- Differences in quality of a good or service
- Differences in consumption weights
- Many goods and services are not bought and sold in markets and therefore do not have official prices
- The quality of economic data varies across countries
How does national income data link to PPP?
It is used by the world bank
