KEY TERMS Macro Unit 1: The measurement of macroeconomic performance

Policy objective

a target or goal that policy-makers aim to ‘hit’.

The four policy objectives of the UK government

• Achieve economic growth and improve standard of living

• Create and maintain full employment or low unemployment

• Limit or control inflation

• Attain a satisfactory balance of payments

Short-run economic growth

growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy.

Long-run economic growth

an increase in the economy’s potential level of real output, and an outward movement of the economy’s production possibility frontier.

Real GDP

a measure of all the goods and services produced in an economy, adjusted for price changes or inflation.

Recession

six months or more of negative economic growth/declining real national output.

Full employment

according to Beveridge’s definition, full employment means 3% or less of the labour force unemployed. According to the free-market definition, it is the level of employment at the market clearing real-wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting to work.