Chapter 6 - Measurement Of Macroeconomic Performance

Question 1

What is a policy objective?

Answer 1

A target or goal that a government wishes to achieve or ‘hit’

Question 2

What is short run economic growth?

Answer 2

Growth of real output resulting from using idle resources (movement from a point inside the ppf to on the ppf)

Question 3

What is long run economic growth?

Answer 3

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

Question 4

Gross domestic product (GDP)

Answer 4

The total number of goods and services produced in an economy over a period of time

Question 5

What is the difference between real GDP and nominal GDP?

Answer 5

Real GDP has been adjusted for price changes or inflation whereas nominal GDP is GDP measured at the current market prices, without removing the effects of inflation

Question 6

Beveridge definition of full employment

Answer 6

3% or less of the labour force are unemployed

Question 7

What is the free-market definition of full employment?

Answer 7

The number of workers whom employers wish to hire equals the number of workers wanting to work

Question 8

What is better about Beveridge’s definition of full employment?

Answer 8

It accepts that withers will always be some unemployment because the economy is always changing

Question 9

Why do free-market economists prefer their definition of full employment?

Answer 9

They think the first definition is too arbitrary and lacking any theoretical underpinning

Question 10

Claimant count

Answer 10

The method of measuring unemployment according to those people who are claiming unemployment-related benefits

Question 11

Labour force survey

Answer 11

A quarterly sample survey of households in the UK which seeks info about personal circumstances and their labour market status during a period of 1-4 weeks

Question 12

What is inflation?

Answer 12

A persistent or continuing rise in the average price level

Question 13

If the price of a particular good or service within an economy changes, is this inflation?

Answer 13

No, inflation occurs when most prices are rising by some degree across the whole economy

Question 14

What does controlling inflation mean?

Answer 14

Achieving a low inflation rate rather than absolute price stability (a zero rate of inflation is extremely rare)

Question 15

What is the target inflation rate in the UK?

Answer 15

2%

Question 16

What is deflation?

Answer 16

A persistent or continuing fall in the average price level

Question 17

Difference between deflation and disinflation?

Answer 17

Disinflation is when the rate of inflation is falling but is still positive whereas deflation involves a falling average price level

Question 18

What are the two different ways to measure inflation in the UK?

Answer 18

Consumer price index (CPI)
Retail prices index (RPI)

Question 19

What is consumer price index/how is it measured

Answer 19

It calculates the average price increase of a basket of 700 different consumer goods and services
- the official measure

Question 20

What is RPI/ when is it used?

Answer 20

• an older measure
• UK government use for indexation of state pensions + benefits

Question 21

What is the current account of the balance of payments?

Answer 21

It measures all of the currency flows into and out of a country in a particular time period in pay,ent for exports and imports

Question 22

What are exports?

Answer 22

Goods and services produced domestically (inside a particular country) and sold to residents of other countries

Question 23

What are imports?

Answer 23

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

Question 24

What is a balance of trade deficit?

Answer 24

It occurs when the money value of a country’s imports exceeds the money value of it’s exports

Question 25

What is a balance of trade surplus?

Answer 25

It occurs when the money value of a country’s exports exceeds the money value of it’s imports

Question 26

What does it mean by the objective of ‘balancing the budget’?

Answer 26

When the government spending equals government revenue (mainly from tax)

Question 27

What is a budget deficit?

Answer 27

When the government spending is greater than government revenue

Question 28

What is a policy conflict?

Answer 28

It occurs when two objectives cannot be achieved simultaneously; the better the achieving one objective, the worse the performance in achieving the other

Question 29

What is the trade off between economic growth and environmental protection?

Answer 29

Increased production of goods and services = higher CO2 emissions, loss of biodiversity and greater output of non-biodegradable waste - global warming damages living standards of current + future generations (more extreme weather conditions) - loss of biodiversity and finite resources could compromise the living standards of future generations

Question 30

What is the trade off between Balance of payments equilibrium on the current account and economic growth

Answer 30

As GDP rises and real incomes increase, citizens consume more foreign goods and services e.g. foreign built cars and holidays

Question 31

What is the trade off between falling unemployment and low inflation rates?

Answer 31

As unemployment falls, real income increases meaning demand for goods and services increase. This causes demand-pull inflation. PHILLIPS CURVE

Question 32

What do Keynesian economists believe?

Answer 32

That the government should manage the economy

Question 33

What do free-market economists believe?

Answer 33

They dislike government intervention

Question 34

What is the monetary policy?

Answer 34

The use by the government and the Bank of England of interest rates and other instruments to try to achieve the governments policy objectives

Question 35

What is the fiscal policy?

Answer 35

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

Question 36

What are lead indicators?

Answer 36

Provide info about the future state of the economy - from surveys of consumer and business confidence and investment intentions to provide info about aggregate demand in the future

Question 37

What are lag indicators?

Answer 37

Provide info about past and possibly current economic performance and to what extent policy objectives have been achieved.

Question 38

what is GNP a measurement of?

Answer 38

the total value of all finished goods and services produced by a country's citizens in a given financial year, irrespective of their location e.g.f a German-owned company has a factory in the United States, the output of this factory would be included in U.S. GDP, but in German GNP.

Question 39

what is national income?

Answer 39

GNP - depreciation ( the cost of replacing capital due to wear and tear)