Measurement Of Macroeconomic Performance

Question 1

Name 6 key macroeconomic objectives and tell me a bit about them.

Answer 1

1. Sustainable growth - increase in real GDP, long term stable and environmentally sustainable growth
2. Price stability - keep inflation low and stable e.g U.K. 2%
3. Low unemployment
4. Sustainable fiscal deficit and national debt
5. Low income inequality and poverty
6. Stable current account

Question 2

What is economic growth?

Answer 2

Increase in real gdp - the value of goods and services produced in a given time

Question 3

What does a rising real gdp mean

Answer 3

Higher output, income and standard of living (Cerberus paribus)

Question 4

What is the formula for gdp per capita?

Answer 4

Real gdp / population

Question 5

What is gdp per capita a better measure of individual prosperity

Answer 5

For example china has a large gdp but low gdp per capita due to its large population. Quatar has a smaller GDP but high gdp per capita.

Question 6

What is inflation? And how is it measured?

Answer 6

A persistent increase in the general price level overtime. Measured annually by cpi and rpi. Which is based on the price changes of a basket of commonly purchased goods and services

Question 8

What does high and unexpected inflation cause?

Answer 8

Reduces purchasing power making goods/services less affordable

Question 9

What is unemployment

Answer 9

A person actively seaking work but not currently employed

Question 10

What are the two ways unemployment is measured?

Answer 10

Claimant count - people receiving job seekers allowance
ILO - based on surveys - people receiving work in the past 4 weeks and ready to start with in 2 weeks

Question 11

Which unemployment measure is more accurate

Answer 11

Cc may underestimate true unemployment due to people not claiming benefits.

Question 12

What does high unemployment mean

Answer 12

Lower income and living standards

Question 13

What does international competitiveness indicate

Answer 13

How likely a country’s goods are to be bought by a foreign consumer

Question 14

How is international competitiveness measured

Answer 14

Measured via the trade balance ( exports - imports ) found in the current account

Question 15

How is labour productivity calculated

Answer 15

Output per worker per hour

Question 16

What does higher productivity lead to

Answer 16

More efficient production = lower unit costs = more competitive prices internationally

Question 17

What are index numbers

Answer 17

A way to present economic data more clearly and make comparisons easier
Useful for tracking changes e.g house prices or comparing performance (e.g countries after a recession)

Question 18

How do you calculate index numbers?

Answer 18

Choose a base (usually a year) and assign it a value of 100.
Use the formula: ( new value / base value ) * 100
E.g an index of 102.84 means a 2.84% increase from the base

Question 19

What can index numbers be used for

Answer 19

Helps track percentage change overtime.
Can be used across years to show trends.
Only shows relative changes not actual values.

Question 20

How are index numbers useful to compare countries

Answer 20

All countries / data points use the same base ( country a or a year )
You can see which country grew the most but not their starting values
To compare counties e.g country’s c index = (c’s value / A’s value) *100
If c = 108 it’s 8% more productive than country a called productivity gap.

Question 21

What is national income

Answer 21

Total value of goods / services produced in an economy over a period ( same as gdp )

Question 22

What does national income measure

Answer 22

Measures changes in income and living standards overtime and between counties.

Question 23

What are limitations of national income data

Answer 23

Countries with the same gdp may have different standards of living due to population size
Use gdp per capita ( gdp / population) for better comparison

Question 24

Why is it better to use real gdp rather then gdp

Answer 24

As it is adjusted for inflation

Question 25

What does purchasing power help account for

Answer 25

Helps account for the cost of living differences.

Question 26

What is data inaccuracy of national income data

Answer 26

Developing countries have weak data collection The shadow economy ( illegal or undeclared work) isn’t always counted, underestimating the income

Question 27

How does gdp not account for inequality

Answer 27

GDP is an aggregate so it doesn’t reflect income distribution. Some regions may produce more ( e.g London in the U.K.) High do per capita e.g quatar doesn’t mean fair distribution.

Question 28

Limitations of national income data

Answer 28

Do doesn’t account for productivity or free time Non market activities (e.g jogging) are not included m, while market ones gym membership are. GDP ignores environmental cost of production GDP includes all spending even on negative events (e.g graffiti clean ups) Two counties with the same gdp may spend differently ( e.g healthy vs unhealthy goods), affecting long term living standards

Question 29

What is purchasing power parity

Answer 29

Adjusts exchange rates to reflect the true cost of goods and across countries

Question 30

What is arbitrage

Answer 30

Businesses buy goods in cheaper countries and sell in expensive ones, purchasing prices and exchange rates align.

Question 31

What does purchasing power parity help predict

Answer 31

Helps predict exchange rates and assess relative living standards