Measurement of macroeconomic performance

What are the objectives of macroeconomic policy?

• Economic growth

• Maintain full employment

• Limit inflation/achieve price stability

• Improve standard condition of living

• Equitable distribution of income

• Satisfactory balance of payments

• Balancing the budget

What is short run growth?

• Increase in a output or GDP that is driven by using spare capacity

• Shown as a movement from inside the PPF to the PPF

What is long run economic growth?

• Increased output or GDP over an extended period of time due to an increase in the economy productive capacity

• Outward movement of the PPF

Define nominal GDP and real GDP

• Nominal GDP = Is used to determine economic growth by measuring the value of all goods and services produced within an economy at current market prices

• Real GDP = Total value of all goods and services in the economy adjusted for inflation (removes effects of price changes)

What is Beveridge’s definition of full employment ?

• When unemployment falls to 3% of the labour force

Free market definition of full employment

• Supply of workers willing to work = Demand of workers firms willing to hire

• This definition claims there is no unemployment when these to variables equal each other

Define claimant count

• Measure of unemployment

• Based on the number of people claiming job seekers allowance

What is the labour force survey

• Measure of unemployment

• Quarterly sample surveys to asses UK labour market and employment status

Deflation meaning

• Falling average price level

• Also called negative inflation

Define disinflation

• Rate of inflation is still rising but a slower rate

What does balancing the budget mean?

• Government spending = Government revenue

Define budget deficit and budget surplus

• Gov spending exceeds revenue

• Gov revenue exceeds spending

When does policy conflict occur ?

• Occurs when two macroeconomic objectives cant be achieved at the same time

• Causing a trade off - the selection of one objective compromises the other

What is are examples of trade off?

• Full employment and inflation

• Economic growth and inflation

• Current living standards and future living standards

• Economic growth and an equitable distribution of income

What is a performance indicator

• Used to assess the success or failure of a particular policy

What indicators could be used to measure the success of a fiscal and monetary policy?

• Fiscal = The size of the budget deficit

• Monetary= Size of the money supply

What is money supply

• The total amount of money available in the economy at a given time

What are 2 types of performance indicators?

• Lead indicator

• Lag indicator

Define a lead indicator

• Provides information for the future state of the economy

• Surveys of business/consumer confidence and investment intentions indicate how people feel regarding the economy

• This can help determine likely AD

Define lag indicator

• Provide information for the past and current economic state

• Also determine the extent to which policies have helped meet macroeconomic objectives

• Data on GDP and employment provide information about past and current economic performance

What determines the usefulness of a performance indicator?

• Whether or not it provides accurate data - derived from a reputable source like the government

Why are index numbers used?

• To make comparisons over a period of time

What is the base year and its index number

• base year is the year the index start from

• 100

How do you workout percentage change when a comparison is made with a year other than the base year?

• Change in index points/Index number used instead of base = ANS

• ANS multiplied by 100

What is the CPI

• Measures the changes in average price level and rate of consumer inflation

• Is an in indicator for inflation

What is a basket of goods?

• Represents goods and services a “typical” consumer would purchase

• The prices of these items are tracked over time to measure the change in average price levels