Macro 1: Macroeconomics Indicators and Government Objectives

Question 1

What is macroeconomics?

Answer 1

Economic activity across many industries within an entire regional, national or global economy.

Question 2

What is microeconomics?

Answer 2

Production and trade of goods or services in one specific industry.

Question 3

What are macroeconomic indicators?

Answer 3

Data which is commonly used to measure the performance of an economy.

Question 4

What are examples of macroeconomic indicators?

Answer 4

real GPD, real GPP per capita, Consumer Prices and Retail Prices Indices (CPI/RPI), measures of unemployment, productivity and the balance of payments on current account.

Question 5

What does the mnemonic ‘TIGER’ represent?

Answer 5

The most significant macroeconomic indicators.

Question 6

What does ‘TIGER’ stand for?

Answer 6

Trade balance, Inflation (low), Growth (sustainable), Employment (high), Redistribution of wealth

Question 7

What is economic growth (indicator) and how is it measured?

Answer 7

An increase in the production of goods and services in one period compared with a previous period. It’s measured in nominal (unadjusted) or real (adjusted to remove inflation) terms. It’s also measured in terms of GNP/GDP and measures the standard of living.

Question 8

What does GDP measure?

Answer 8

The market value of all the finished goods and services produced within a country in a year.

Question 9

What is the difference between GDP and Real GDP?

Answer 9

Real GDP is used to compare the economy over time as it controls for changes in price. Nominal GDP is when prices increase so the GDP number goes up but it’s driven by inflation. Goods and services aren’t actually increasing.

Question 10

What is GDP per capita?

Answer 10

GDP divided by the midyear population.

Question 11

What aims do the government have regarding economic growth?

Answer 11

Sustainable economic growth for the long run. They want to increase it to improve living standards.

Question 12

What is the difference between GDP, GNP and GNI?

Answer 12

Gross national income (GNI) measures the income earned by citizens operating outside of the country + the GDP
Many citizens employ their resources outside of a country’s borders - and then send the income home.
Gross national product (GNP) takes it one step further
GDP + income from abroad - income sent by non-residents to their home countries

Gross National Product is like GDP but it includes the income made by a nation’s residents from investment abroad so GDP measures the total output of goods and services from only that nation. Gross National Income is the same as GNP.

Question 13

What difficulties are there in measuring economic growth?

Answer 13

Lack of statistical data.

Question 14

What definitions are there for inflation?

Answer 14

Demand inflation is when there are increases in the number of people who want something whose supply can’t keep up. Cost-push inflation is where the cost of businesses rise and is pushed onto customers, eg. by increasing menu prices. This could be because of land rent and raw material prices increasing, or workers asking for more money.

Question 15

How is inflation measured?

Answer 15

By percentage. It compares the cost of things today with how much they cost a year ago. The average increase in prices is the inflation rate.

Question 16

What differences are there between RPI and CPI?

Answer 16

They’re both indices that seek to measure the current rate of inflation. Consumer Price Index is calculated using a ‘basket of goods’ that reflects what consumers would tend to buy. This basket is then averaged to approximate the price level, and compared to previous data. Retail Price Index incorporates the cost of living, such as rent, in its inflation level, so RPI tends to be higher.

Question 17

What rate of inflation is the target rate in the UK?

Answer 17

2%

Question 18

What is the definition of unemployment?

Answer 18

Individuals who aren’t currently employed but seeking work.

Question 19

What is the unemployment level and what is the unemployment rate?

Answer 19

4.1% in the UK

Question 20

How are unemployment levels and rates measured?

Answer 20

Surveys.

Question 21

What is the difference between the claimant count and the labour force survey as measures of unemployment?

Answer 21

Claimant count is people claiming job seeker benefits. The labour force survey is the number of people who are available for work but don’t have to be seeking benefits.

Question 22

What are the four broad categories of unemployment?

Answer 22

Frictional
Seasonal
Cyclical
Structural

Question 23

What does the current account on the balance of payments measure?

Answer 23

A country’s imports vs. exports.

Question 24

What does the government aim to achieve with regards to trade?

Answer 24

To enhance economic prosperity for the UK, through the development and delivery of a UK trade policy that delivers benefits for business, workers and consumers across the whole of the UK.

Question 25

What is the current balance of payments on the current account in the UK?

Answer 25

Export- £1.6bn
Import- £4.2bn

Question 26

How is the trade balance calculated?

Answer 26

Exports - imports

Question 27

What is labour productivity (indicator) and how is it measured?

Answer 27

It’s how well and efficiently people are working. It’s measured by the number of units produced to the number of working hours.

Question 28

If productivity improves what does this mean for the output of an economy?

Answer 28

It produces and releases more goods.

Question 29

How do we convert these figures into index numbers with week 4 as the base week?
Week 1 2 3 4 5 6 7 8
No. Fish 8 12 30 54 67 75 83 90

Answer 29

We need to pick a ‘base’ reading, in this case a ‘base week’ and calculate the relationship of the size of the catches in all the other weeks to the size of the catch in the base week expressed as a percentage.
So, if we chose week 4 to be our base week, to get the index numbers we would divide the size of the catch in each week by the size of the catch in week 4 and multiply it by 100 to get the index for the catch each week, following the following formula:
VALUE FOR CURRENT PERIOD/ VALUE FOR BASE PERIOD X 100
Although an index number is a percentage, they are written without a percentage sign. Note that the index for the base week/month/year will always be 100.

Index numbers are 14.8, 22.2, 55.6, 100, 124, 138.9, 153.7 and 166.7

Question 30

What is the formula for calculating index numbers?

Answer 30

Value for current period/Value for base period x 100

Question 31

What is structural unemployment?

Answer 31

Structural unemployment is a type of unemployment that occurs when the labor market is unable to provide jobs to all individuals who are seeking employment due to a mismatch between the skills or qualifications of job seekers and the available job opportunities. This mismatch can arise due to changes in technology, changes in the structure of the economy, or changes in the demand for certain skills or occupations.

Question 32

What is frictional unemployment?

Answer 32

The number of people who are classed as unemployed while they are moving between jobs.

Question 33

What is seasonal unemployment?

Answer 33

Seasonal workers without jobs due to the time of year where there are seasonal changes in employment e.g. fruit-pickers in summer, retail jobs pre-Christmas

Question 34

What is cyclical unemployment?

Answer 34

Cyclical unemployment is a type of unemployment that is caused by fluctuations in the business cycle or economic cycle. It occurs when there is a downturn or contraction in the economy, which leads to a decrease in AD, demand for goods and services, and subsequently a decrease in demand for labour. As output falls in the economy, firms lay off workers
Eg. in a recession

Question 35

What is the percentage difference in CPI between the two years?

Answer 35

the inflation rate for the period

Question 36

What is fiscal policy?

Answer 36

The use of government spending and taxation to influence the economy and achieve macroeconomic objectives.

Question 37

What’s the difference between claimant count and ILO?

Question 38

What is cost push inflation?

Answer 38

Cost push inflation is caused by increases in the costs of production in an economy.

Question 39

What is demand pull inflation?

Answer 39

Demand pull inflation is caused by excess demand in the economy.