U3AOS2 MACROECONOMICS GOALS Flashcards
(52 cards)
Material living standards
ability of individuals to access tangible goods and services, contributing to quality of life.
e.g
- levels of national production and income per head
- rates of employment and unemployment
Non-Material living standards
focuses on intangible factors which cant be measured in dollar terms and contributes to quality of life.
- levels of personal happiness
- crime rates and personal safety
measures of material living standards
- GDP A.K.A nominal GDP (measures total value of g/s produced in economy using current market prices)
- real GDP (adjusts for inflation using fixed base year’s prices)
- real GDP per capita (calculated dividing real GDP by population providing an average measure of economic output per person)
Relationships between material / non-material living standards
conflicting relationships = tradeoffs where progress in one area undermines the other
e.g environmental tradeoffs, health and social trade-off
compatible relationships = progress of one area promotes other
e.g cultural enrichment , longer life expectancy
Lagging indicators of economic activity
only tells a reader what activity levels of economy was occurring in the past. Does not tell current economic activity levels.
e.g GDP, unemployment rate, inflation rate
Coincident indicators of economic activity
move very closely with actual changes in level of economic activity. Published regularly at shorter intervals and more or less tell us what’s happening right now.
Leading indicators of economic activity
seek to predict where economy may be heading in the future. While not completely reliable, often forecast a general change in activity.
e.g new housing approvals and business confidence.
Circular flow model
all flows
FLOW 1 household -> firm
- household sector provides factors of production to business sector
FLOW 2 firm -> household
- income returned to household sector for providing resources
FLOW 3 income is consumed (c) through leakages / injections
financial sector
savings / investment
government sector
tax / government spending
overseas sector
import / export
FLOW 4 firm -> household
production of goods / services (real gdp)
Business cycle
business cycle
- production
- spending
- employment
peak - highest point of cycle followed by contraction and eventual trough
trough - lowest point of economic contraction
boom - when level of growth is too excessive and unstable
contraction - decline in economic activity
- higher inflation
- higher interest rates
expansion
upward trend
business cycle key points
booms - strong growth, high inflation and low unemployment
recessions - weak production, low inflation and high unemployment
Aggregate demand
represents total expenditure on goods / services produced in economy over a period of time
factors of AD
disposable income
interest rates
business / consumer confidence
Aggregate supply
represents total volume of g/s that producers are prepared to supply to market. Representing ability of economy to meet AD.
what is macroeconomics
examines overall performance of economy of a country like economic growth, inflation and unemployment.
goal of strong and sustainable economic growth
involves achieving highest rate of economic growth possible with consistent / strong employment growth without jeopardizing low / stable inflation and intertemporal efficiency as well avoiding external pressures.
growth rate of strong / sustainable real GDP per annum = 3 - 3.5%
ways to measure changes
quarterly growth e.g june
GDP jun - GDP mar / GDP march
x 100
annual growth e.g june
GDP june 16 - GDP june 15 / GDP june 15
x 100
Annualised growth e.g june
quarterly growth x 4
e.g 0.5x4 = 2%
consequences of not achieving goal of sustainable / strong economic growth
living standards
rate of inflation
unemployment levels
goal of full employment meaning
refers to achieving maximum growth in employment with lowest level of unemployment without jeopardizing low / stable inflation.
NAIRU (non-accelerating inflation rate of unemployment)
4.25%
classification of employment
15 years+
working minimum of 1 hour a week
classification of unemployment
15+
actively seeking work
less than 1 hr a week
weakeness to definition of unemployment
- doesnt reflect full uitility of labour
- required to be actively looking for work = underestimate unemployment rate
- individuals with certain roles can be valuable to society however considered unemployed e.g stay at home parents
labour force equation
employed + unemployed
participation rate formula
labour force / working-age population x 100
percentage of people in working-age population that are labour force
