Measuring macroeconomic performance (order of delivery)

Question 1

What are the 5 main economic indicators (objectives)?

Answer 1

-price stability
-(sustainable) economic growth
-(low) unemployment
-(stable) government budget position
-(stable) balance of payments position

Question 2

Define “price stability”

Answer 2

having a low level of inflation and/or deflation

Question 3

Define “economic growth”

Answer 3

The annual % increase in real GDP

Question 4

when is economic growth “sustainable”?

Answer 4

when it can be maintained at the current rate for a long period of time

Question 5

what is the UK’s inflation target for 2025?

Answer 5

2% CPI

Question 6

What is GDP? (gross domestic products)

Answer 6

GDP is a measure of output, income or expenditure of an economy in a given time period

Question 7

what are real GDP figures adjusted to consider

Answer 7

Real GDP adjusts for inflation

Question 8

how do you calculate an increase/ decrease in real GDP?

Answer 8

GDP% increase - inflation = real GDP (eg. +6% - 5% = +1%)

Question 9

what is GDP per capita and how is it calculated

Answer 9

it is the GDP per person

GDP per capita = GDP/ population

Question 10

What does calculating GDP per capita allow?

Answer 10

It allows comparisons to be made between countries to indicate:
-income levels
-living standards
GDP per capita also allows for comparison between economic and population growth to be made
Eg. if real GDP increases by 1% and population increases by 3%, the GDP per capita decreases be 2%

Question 11

define “unemployment”

Answer 11

when a person is not in employment, education, or training and is actively seeking employment while claiming JSA

Question 12

what is JSA?

Answer 12

Job seeker’s allowance

Question 13

why would the government try to keep unemployment low?

Answer 13

-people will have more income
-therefore they’re likely to spend more
-this creates demand in the economy
-Employed people also pay income tax
-this puts the government budget position more towards a
surplus

Question 14

what does the government budget position look at?

Answer 14

the gov budget position looks at the difference between:
-tax revenue being brought in
-government spending
(in a given time period)

Question 15

what is a government budget deficit?

Answer 15

when the government spends more money than it receives

Question 16

what is a government budget surplus?

Answer 16

when the government receives more money than it spends

Question 17

how does debt relate to the gov budget position?

Answer 17

whenever there is a deficit, the national debt increases

Question 18

what is “national debt”?

Answer 18

national debt = the government’s debt

Question 19

why can having too much debt be problematic?

Answer 19

The money has to be repaid with interest

Question 20

what happens if national debt increases too much?

Answer 20

It become more difficult for the government to borrow money (the interest rate for their future loans will increase until debt it paid back
-This will lead to an increase in interest rates for people and
businesses in the country

Question 21

what does the balance of payments position look at?

Answer 21

The balance of payments position looks at the difference between:
-money entering the country (from sales of exports)
-money leaving the country (to pay for imports)

Question 22

when does a balance of payment surplus mean?

Answer 22

value of imports < value of exports

Question 23

when does a balance of payment deficit mean?

Answer 23

value of exports < value of imports

Question 24

the UK has a persistent balance of payment deficit. Why would they want to stop this from getting out of control?

Answer 24

if there are more imports than experts, this means that there is more money leaving the UK than there is coming in
-This will slow down economic growth

Question 25

when is economic growth positive?

Answer 25

when real GDP increases

Question 26

define inflation

Answer 26

the annual increase in the general price level (the % increase in CPI)

Question 27

what metric is used to measure inflation?

Answer 27

CPI (consumer prices index)

Question 28

how is CPI calculated?

Answer 28

using a weighted basket of goods (& services). to work out CPI: -price increase of a good x percentage of income spent -repeat this for all the goods in the basket -add all the results together to get the CPI Eg. item Price increase(%) %of income spent food 5 x 40% = 2 fuel 20 x 10% = 2 clothes 10 x 50% = 5 CPI = 9% *note - items can be inflated by alot, but if the % of income spent is very low, the item won't change the CPI by alot

Question 29

what does "weighted" mean, under the context of calculating inflation?

Answer 29

"weighted" means that the goods & services that the average family spends a greater proportion of their income on are given a larger significance in the inflation calculation (eg. food and water are more significant than light bulbs & stamps)

Question 30

What is RPI?

Answer 30

Retail prices index: similar to CPI but the RPI includes: -house prices -mortgage costs -council tax while the CPI doesn't

Question 31

why did the UK government start measuring inflation using the CPI rather than the RPI?

Answer 31

Because house prices were too volatile for how heavily they were weighted in the RPI This made the RPI too dependent on one good to be used as a reliable metric of the general price increases

Question 32

what is the "claimant count"?

Answer 32

the amount of people claiming JSA (UK = 1.55M people (Aug 2023))

Question 33

Define "Labour force survey"

Answer 33

A measure similar to claimant count but it also includes people who are ineligible to claim JSA (this is an unofficial measure not taken by the government)

Question 34

Define "unemployment rate" and "working population"

Answer 34

unemployment rate = The % of the working population that are unemployed (4.3% - July 2023 (UK)) working population = those of working age (18-65 in the UK)

Question 35

Define"employment rate"

Answer 35

The % of people who are employed (75.7% - June 2023(UK))

Question 36

employment rate + unemployment rate != 100% Why?

Answer 36

not everyone is either employed or unemployed >some people are not working or seeking employment >people who are neither employed or unemployed are deemed "economically inactive"

Question 37

who are "economically inactive" people? (name examples & define)

Answer 37

people who are neither employed or unemployed are deemed "economically inactive" >Eg. housewives, wealthy people, those not working just before retirement age

Question 38

how do you calculate the balance of payments on current account?

Answer 38

balance of payments on current account = balance of trade + primary balance + secondary balance

Question 39

how do you calculate the visible balance of payments?

Answer 39

visible balance = value of goods exported - value of goods imported

Question 40

how do you calculate the invisible balance of payments?

Answer 40

Invisible balance = value of services exported - value of services imported

Question 41

How do you calculate balance of trade?

Answer 41

balance of trade = visible balance of payments + invisible balance of payments

Question 42

how do you calculate primary balance of payments?

Answer 42

Primary balance of payments = profits from UK firms - profits from overseas firms overseas coming into UK coming into UK

Question 43

what is secondary balance of payments?

Answer 43

The secondary balance of payments is money moving between countries with no corresponding trade (Eg. foreign aid)

Question 44

"the UK has a visible balance ________ and an invisible balance ________. as the deficit is greater than the surplus, the UK has a balance of trade _________."

Answer 44

-deficit -surplus -deficit

Question 45

what will often occur if you try to achieve different economic objectives at once?

Answer 45

Conflicts may arise (achieving one objective could directly make another more difficult to achieve

Question 46

What may happen if the gov decides to spend more on education and infrastructure?

Answer 46

+extra demand in economy created, leading to more economic growth:) employment is lower as more gov spending creates additional jobs :) -This extra demand will also lead to increased inflation :( +extra gov spending also increases skill level of workers, whilst improved infrastructure will help to reduce business costs >These long term effects could increase economic growth:) and reduce inflation:) -increased spending on education and infrastructure would also mean an increase in the. government budget deficit:( +with better workers & infrastructure to help businesses to lower their costs, they will have improved international competitiveness against other international businesses:) +This increased competitiveness will allow the businesses to potentially bring in more revenue from abroad, leading to a greater BoP surplus:)

Question 47

how does a conflict exist between trying to achieve a table BoP position and economic growth?

Answer 47

as the economy grows:), consumer incomes rise. >these rising incomes mean an increase in consumer and business demand >This deteriorates the balance of payments towards a deficit:(

Question 48

What is national income measured by?

Answer 48

GDP (GDP = national income = national output = National expenditure)

Question 49

What is the difference between nominal and real income?

Answer 49

Nominal figures are the actual amount of money at the time whilst real figures are the amount of money after adjustments for inflation

Question 50

what do national figures show and allow?

Answer 50

-national figures show the value of the total income in an economy -they also allow comparisons to be made between different countries and after time

Question 51

benefits of economic growth

Answer 51

+increase in living standards and income levels due to there being more money in the economy (increase in living standards depends on the distribution of wealth in a country) +more economic activity means that the government will receive more tax revenue and spend less on benefits as more people will be employed

Question 52

Drawbacks of Economic Growth

Answer 52

-as economic growth is often caused by increases in demand, excessive inflation could come as an issue along with the growth -unsustainable economic growth is likely to lead to high inflation, which could reduce real incomes (this may lead to a recession as people would spend less to save money). This makes people worse off in the long run -increased economic growth may lead to an increase in imported goods & services as average incomes rise. This will lead to a deterioration in the balance of payments position -Economic growth often has an environmental cost which is neglected - this can have an impact on living standards

Question 53

define disinflation

Answer 53

a fall in the rate of inflation (Prices still increasing but at a slower rate

Question 54

what are index numbers

Answer 54

index numbers are a way of expressing data by showing each number as a % of a randomly chosen number (base value)

Question 55

how do you calculate an index number?

Answer 55

chosen value ------------------- x 100 = index number base value