Macro 1 Flashcards
What are the main objectives of government economic policy?
- Economic growth.
- Price stability.
- Minimising unemployment.
- A stable balance of payments on current account.
What data is commonly used to measure the performance of an economy/
> real GDP, real GDP per capita, CPI, RPI, measures of unemployment, productivity and the balance of payments on current account.
Indicator and objective
- Growth - strong, sustained, sustainable.
- Unemployment - low and full employment.
- Inflation - low and stable, 2% (+/-1%).
- Trade - balanced.
- Distribution of income - ‘fair’ (normative as depends on view).
Economic growth - definition
> An increase in an economy’s productive potential. Usually measured as the rate of change of the GDP, or the GDP per capita.
GDP - definition
> All the goods and services produced by a country (national output).
Calculate the value (£ billions) of all the goods and services produced in one year.
Nominal GDP - definition
> GDP which hasn’t been adjusted for inflation.
>Misleading as suggests GDP is higher than it is.
Real GDP - definition
> GDP which has been adjusted for inflation.
GNI
> Gross National Income.
>GDP plus net income from abroad.
GNP
> Gross National Product.
>Total output of the citizens of a country.
What can GNI and GNP be used for?
> Comparing standards of living.
GDP limitations
>Hidden economy. >Public spending is different for different governments. >Extent of income inequality. >Working hours and conditions. >Different spending needs, e.g. heating.
PPP
> More accurate and easier comparison.
Inflation - definitions
- The sustained rise in the average price of goods and services over a period of time.
- Or it can be seen as a fall in the value of money.
Deflation
> Fall in the average price.
Disinflation
> Slowing down of the rate of inflation.
Hyperinflation
> Prices rise extremely quickly and money rapidly loses its value.
How is inflation measured?
> Retail Price Index.
>Consumer Price Index.
Retail Price Index
> Living Costs and Food Survey then it measures the changes in price of around 700 of the most commonly used goods and services.
Basket of goods reflects what households may spend money on.
Consumer Price Index
> Slightly different to RPI as it excludes, mortgage interests and council tax.
Slightly different formula.
Larger sample of the population is used.
CPI is the official measure of inflation in UK and is used for international comparisons.
CPI vs RPI
> CPI tends to be a little lower except when interest rates are really low.
Uses of RPI and CPI
> Help determine wages and state benefits and measures changes in UK’s international competitiveness.
If the CPI is higher in UK than others then UK price is less competitive.
Unemployment
> The level of unemployment is the number of people who are looking for a job but cannot find one.
The rate of unemployment is the number of people out of work (but looking for a job) as a percentage of the labour force.
When is unemployment rate used?
> Different population sizes.
How is unemployment measured
- Labour Force Survey.
2. Claimant Account.
