THE MEASUREMENT OF MACROECONOMIC PERFORMANCE

What are the 4 main objects of macroeconomic policy

• Low stable inflation

• Full Employment/ Unemployment

• Price stability

• Good balance of payments

What is GDP

The sum of all goods and services produced in an economy over a period of time

What is real GDP

The sum of all goods and services produced in an economy adjusted for inflation or price changes

What is nominal GDP

GDP measured at the current market prices, without removing the effects of inflation

What is full employment

The level of unemployment occurring at the market-clearing-real-wage rate, the number of workers employers wish to hire equals the number of workers wanting to work

What is Inflation

A persistent rise in average price level

What is deflation

A continuing fall in the average price level

What is disinflation

When the rate of inflation is falling, but still positive

What is the indicator of price stability?

% change in the CPI (Consumer Price Index)

What is the indicator for a satisfactory balance of payment of current account?

The balance of trade

What are lead and lag indicators?

• Lag indicators - data about the past

• Lead indicators - expectations about the future

When is there a fiscal surplus or fiscal deficit

Fiscal surplus :Tax revenue > Govt spending

Fiscal deficit : Tax revenue < Govt spending

How can a fiscal deficit be removed

• Increasing taxes

• Reducing spending

What are the other measures of national income?

GNI (Gross National Income)

Macroeconomic conflict

When it is not possible to achieve two objectives at the same time , especially in the short run

The main economic agents

• Households

• Firms

• Government

Sectors of an economy

• Primary- raw materials and natural resources

• Secondary- manufacturing

• Tertiary - health services, education

• Quaternary- ICT, R&D

What are economic shocks

Unexpected events that have a big impact on the economy

What will be the trade- off of high economic growth

Higher inflation

What will be the trade-off of reducing the fiscal deficit

Impact on public services

What will be the trade-off of dealing with a crisis (COVID, GFC)

Increase in the fiscal deficit

What is CPI

The measure used to calculate the consumer price inflation in the UK

It measures the change in the average cost of living

What is indexation

A technique to adjust payments by means of a price index

What does National Income Data tell us

How the economy is doing in terms of size and growth

How is living standards measured

Real GDP or GNI per capita

What is Purchasing Power Parity (PPP)?

The exchange rate at which the currency of one nation must be converted into the currency of another so that the same products and services can be purchased in each country.