6 the measurement of macro economic performance

Question 1

what are the 4 main macroeconomic objectives

Answer 1

• economic growth
• low unemployment
• price stability (1-3)
• satisfactory balance of payments

Question 2

short-run economic growth definition

Answer 2

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

Question 3

slack economic definition

Answer 3

unemployed resources

Question 4

long-run economic growth definition

Answer 4

an increase in the economy’s potential level of real output, and an outward shift of the economy’s ppf

Question 5

gross domestic product (GDP) definition

Answer 5

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

Question 6

Real GDP definition

Answer 6

a measure of all the goods and services produced in an economy, adjusted for price changes or inflation

-changes nominal GDP to a measure tat reflects changes in the total output of the economy

Question 7

nominal GDP definition

Answer 7

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

Question 8

recession definition

Answer 8

a fall in real GDP for 2 or more consecutive quarters

Question 9

full employment definition

Answer 9

2 definitions
- Beveridge 3% or less of the labour force unemployed
- free market, number of workers whom employers wish to hire equals number of workers wanting to work (equilibrium)

Question 10

claimant count definition

Answer 10

the method of measuring unemployment according to those people who are claiming unemployment-related benefits (job seeker allowance)

Question 11

labour force survey definition

Answer 11

a quartely summary of households in the UK, measures their circumstances and their labour market status

Question 12

what are the 2 ways to measure unemployment

Answer 12

-claimant count
- labour force survey (more accurate)

Question 13

inflation definition

Answer 13

a sustained rise in the average price level over a period of time

Question 14

deflation defintion

Answer 14

a sustained fall in the average price level over a period of time

Question 15

disinflation defintion

Answer 15

when the rate of inflation is falling, but still positive

Question 16

consumer price index (CPI) definition

Answer 16

the official measure used to calculate the rate of consumer price inflation in the UK
- calculates the average price increase if a basket of 700 different consumer goods and services

Question 17

Retail prices index (RPI) definition

Answer 17

older measurement to calculate consumer price inflation
- less accurate
- takes house prices to account

Question 18

balance of payments definition

Answer 18

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

Question 19

current account of the balance of payments definition

Answer 19

measures all the currency flows into and out of a country in a particular time period in payment for exports and imports, together with income and transfer flows

Question 20

exports definition

Answer 20

domestically produced goods or services sold to residents of other countries

Question 21

imports definition

Answer 21

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

Question 22

balance of trade definition

Answer 22

the difference between the money value of a country’s imports and their exports

• largest component of a country’s balance of payments on current account

Question 23

balance of trade deficit definition

Answer 23

the money value of a country’s imports exceeds the value of their exports

Question 24

balance of trade surplus definition

Answer 24

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

Question 25

balanced budget definition

Answer 25

when government spending equals government revenue, (mostly tax revenue)

Question 26

budget deficit definition

Answer 26

when government spending is greater than government revenue

Question 27

budget surplus definition

Answer 27

when government revenue is greater than government spending

Question 28

policy conflict definition

Answer 28

occurs when 2 policy objectives cannot both be achieved at the same time - the better the performance in one the worse in the other - full employment and low inflation

Question 29

trade-off between policy objectives definition

Answer 29

an acceptable combinations between 2 extremes - 2% inflation and 4% unemployment

Question 30

keynesian economists definition

Answer 30

folowers of the economist john maynard keynes, believes that government should manage the economy particularly through fiscal policy

Question 31

pro-free market economists definition

Answer 31

opponents of Keynesian economists, dislike government intervention within an economy and prefer free markets (Margarette thatcher)

Question 32

monetary policy definition

Answer 32

Policies that manipulate the money supply and interest rates and regulate the activities of banks to achieve monetary objectives such as an inflation rate target and availability of liquidity

Question 33

fiscal policy definition

Answer 33

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

Question 34

what is gdp per capita

Answer 34

total gdp/population

Question 35

define economically inactive

Answer 35

those who are neither employed or unemployed- not actively searching for employment

Question 36

4 criteria for a person to be named unemployed

Answer 36

1. willing to work 2. over 16 3. under 65 4. able to work in the next two weeks 5. not already employed (education)