macro - indicators and objectives

Question 1

what are they key macroeconomic objectives that governments want to achieve?

Answer 1

economic growth
low/stable inflation
full employment/low employment
a balanced balance of payments
economic stability
income redistribution

Question 2

what is an economic indicator?

Answer 2

factor used to judge the performance of an economy

Question 3

what is an economic objective?

Answer 3

what a government wants to achieve

Question 4

what is the primary sector?

Answer 4

production of/using natural resources - the extraction of raw materials and the growing of crops.

Question 5

what is the secondary sector?

Answer 5

the production of manufactured goods - raw materials/crops are processed or transferred into goods.

Question 6

what is the tertiary sector?

Answer 6

production of services - includes transport and communication and finance

Question 7

what is economic growth?

Answer 7

an increase in the total value/output of all goods and services produced in an economy in a given time period.
this is known as actual/short run economic growth usually measured by GDP.

Question 8

what is economic development?

Answer 8

a process by which real per capita incomes are increased e.g. an increase in short run economic growth and the inhabitants of a country are able to benefit from the improved living conditions i.e enhanced education standards.

Question 9

what is sustainable economic growth and development?

Answer 9

growth/development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Question 10

what is a recession?

Answer 10

occurs when actual growth (measured by GDP) falls negative for 2 or more consecutive quarters (of a year).

Question 11

what is meant by the gross domestic product?

Answer 11

a measure of a country’s value of output usually after adjusting for changes in the price level (real GDP)

expressed as a percentage increase or decrease on a previous period of time

also equal to country’s circular flow of income

Question 12

what is nominal GDP?

Answer 12

output measured in terms of prices in the year in question

Question 13

what is real GDP?

Answer 13

nominal GDP with the effects of inflation removed

Question 14

what is GDP per capita?

Answer 14

average per head

Question 15

how to calculate nominal GDP growth rate?

Answer 15

difference/original x 100

Question 16

how to calculate real GDP growth rate?

Answer 16

nominal GDP x base year index / current year price index

Question 17

what is the base year index number?

Answer 17

100

Question 18

example

Answer 18

example

Question 19

what are the advantages of using GDP as a measure of economic growth?

Answer 19

it indicates quantity of goods and services available and therefore can be generally used to assess quality of life for citizens

It summarises a whole range of economic information and determines the comparative strengths and weaknesses of various sectors.

GDP is dynamic, as it changes constantly based on new figures of productivity, consumption and investment. Therefore, economists use GDP to measure n economy’s growth or decline.

It enables policy makers and the Bank of England to judge whether the economy is contracting or expanding, or whether it needs a boost or restraint, and if a threat such as a recession is on the horizon.

It is also universally used, and so can be compared internationally.

Question 20

what are the disadvantages of GDP as a measure of economic growth?

Answer 20

It does not take into account income inequality. GDP per capita is an average, and if the distribution of income is very wide then this will not reflect the income of the majority of the population

to compare GDP between countries, currencies have to be converted. The problem with this is that exchange rates are often subject to government intervention and therefore do not reflect the actual purchasing power of the economy.

it does not represent the negative externalities imposed on human health and the environment arising from the consumption/production of the nation’s output

although GDP is a measure of the goods and services produced by most sectors of the economy, it does not include the hidden economy. This means that the official measure of total output of the economy is likely to be less than the true value and therefore may underestimate the level of economic growth.

it does not take into account innovation or quality improvements if these do not cause an increase in price of the product and therefore the economic growth measure will not reflect these essential improvements in the economy

Question 21

what are the two causes of economic growth?

Answer 21

short-run economic growth and long-run economic growth

Question 22

what is short-run economic growth?

Answer 22

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