the measurement of macroeconomic performance

what are the 5 economics indicators

trade (balance of payments)

inflation

growth

employment (unemployment)

redistribution

government objective for inflation

2%

government objective for growth

want it to be strong sustained and sustainable

objective for trade

minimal trade deficit however unlikely to happen as we import a lot of goods

goals for unemployment

want it to be low

Economic growth definition

increase in production of goods and services over time

usually measured using GDP

inflation definition

the rate of increases of prices in a given time period either due to the increases of the resources or an increase in demand

expressed as a percentage

balance of payments in current account

total value of exports - total value of imports

shown as a value of all current account payments for a period of time

different forms of GDP

nominal

real GDP

GDP per capita

calculated using the market value for the goods despite whether they were sold domestically or abroad

GDP adjusted for inflation

total GDP / population size

CPI

measures weighted goods and how much they cost and the percentage change over a period of time measures inflation

currently 6.7%

RPI

uses the weighted goods the same as CPI as well as household costs such and mortgages and council tax so is often higher than CPI

currently 9%

formula for index numbers

raw number / base number raw number x 100

what value does the base year always have

100

where might government macro-economic objectives rise in the short run

conflict between economic growth and inflation, high inflation can also lead to current account deficit (unstable balance of trade)

growth can lead to exploitation of environment

low unemployment can lead to high inflation

measurements of unemployment

claimant count = measures the number of people claiming unemployment related benefits (jobseekers allowance)

labour force survey = measures people who are out of work and able to work within 2 weeks of getting a job

why use index numbers

to show more clearly changes in data compared to raw numbers

limitations of national income data to assess changes in living standards

Income distribution 

• Doesn’t show the level of inequality (some people may disproportionately benefit from GDP growth)

Environmental and social costs 

• National income data doesn't account for externalities which can worsen standard of living in the long run 

Quality of goods or services may have increased or decreased

Need to use real GDP to account for price increases and inflation over time 

Changes in leisure time (people may be richer but not happier if they are working less

use of national income data to show changes in living standards over time

Its an indicator of economic output 

• Rising GDP can show the economy is producing more which can increase the potential for higher living standards

• By comparing changes in GDP per capita over time we can see if incomes and therefore living standards are rising 

Economic growth can show jobs are being created, wages are increasing and there are more public services 

use of national income data to show changes in living standards in difference countries

Comparing GDP per capita can give us an understanding of whether other countries have lower or higher standards of living

Limitations of national income data to assess living standards between countries

Excludes non-market transactions 

• Things such as un-paid or family work are not captured in GDP this might be more or less prevalent in different countries 

Income distribution 

• Doesn’t show the level of inequality (some people may disproportionately benefit from GDP growth)

Environmental and social costs 

• National income data doesn't account for externalities which can worsen standard of living in the long run 

Quality of goods or services may be better or worse in one country

importance of using PPP exchange rates when making international comparisons

If exchange rate isn’t made at PPP then we cannot understand the cost of living in relation to income