9.0 The Measurement of Macroeconomic Performance (All in 1)

What are the 4 main macroeconomic objectives of government policy

• Economic growth

• Stable inflation

• Low unemployment

• Stable balance of payments on the current account

What additional macroeconomic objectives might government pursure

• Balanced Budget

• Environmental stability

• Equitable distribution of income

Why might conflicts arise when pursuing macroeconomic objectives

Conflicts may arise because achieving one macroeconomic objective can negatively impact another, such as prioritizing economic growth which may lead to higher inflation or income inequality.

Does the importance of macroeconomic objectives remain constant over time

No, the emphasis on macroeconomic objectives can change due to economic conditions and policy priorities

What is real GDP

The total value of goods and services produced in an economy, adjusted for inflation

How is GDP per capita calculated

By dividing the total GDP by the population, indicating the average economic output per person

What do the CPI and RPI measure

They measure changes in the price level of a basket of goods and services, indicating inflation

What are common measures of unemployment

The Claimant Count and the Labour Force Survey

What does the balance of payments on the current account include

Trade in goods and services, primary income, and secondary income between a country and the rest of the world

What is primary income

Primary income refers to earnings from providing factors of production—such as labor and capital—to the rest of the world

What is secondary income

Records unilateral transfers between residents and non-residents, where no goods or services are exchanged in return. These transfers include items such as foreign aid, remittances, and gifts.

What is an index number

A statistical measure that reflects changes in a variable, relative to a base year, which is typically set at 100

Why are weights used in Index Numbers

To reflect the relative importance of different items in the index, such as the proportion of consumer spending on each time

How are index numbers used in economics

To measure changes over time in variables like price levels, such a the proportion of consumer spending on each item

What is the significance of the base year in index numbers

The base year serves as a reference point with an index value typically set at 100

What is economic growth and how is it measured

Economic growth is the rise in the value of GDP, which measures the quantity of goods and services produced in an economy.

What is the difference between nominal GDP and real GDP

Nominal GDP is not adjusted for inflation; real GDP is adjusted for inflation, giving a more accurate picture

What does GDP per capita represent

Total GDP/ Total Population, showing average output per person and allowing for comparisons between countries

What is Gross National Product (GNP)

GNP includes GDP plus income from overseas assets, minus income earned from foreign residents withing the country

What is Gross National Income

GNI is GDP plus product taxes (minus subsidies) and income from abroad, including wages and property income

Why might GDP not reflect living standards accuratley

GDP doesn’t show income distribution, ignores black market activity, and doesn’t account for welfare or well-being

Why is purchasing power parity (PPP) important in comparing living standards

PPP adjusts exchange rates to reflect the cost of living, helping to make more accurate international comparisons

Name a non-economic measure that can complement GDP to assess living standards

The Happiness Index