macro 4.2.1 (section 1)

measurement of macroeconomic performance

an economy

the distribution of services and goods to fill peoples needs and wants

the fundamental economic problem

the mismatch between limited resources and unlimited wants (who receives the goods and services / how/what goods and services are produced)

the 2 pure economic systems

command and free market

opportunity cost

best use of time, benefits outweigh the potential cost (next best alternative) - result of scarcity

mixed economy

somewhere in between pure free market and pure command economy

primary objective of economics

profit maximalisation

profit formula

profit = revenue-cost

4 main macro objectives

full employment

satisfactory balance of payments

strong,sustainable, balanced economic growth

price stability (low stable inflation)

full employment

only 4% unemployed

ideal inflation

2 (±1) %

balance of trade measured by

trade balance (x-m) as a % of gdp

full employment measured by

labour force survey (%)

stable inflation measured by

change in consumer price index (%)

economic growth measured by

change in real GDP (%)

lag indicators

data about the past

lead indicators

expectations about the future state of the economy

animal spirits

term coined by Keynes and represents effects of confidence/fear/emotions on the economy

post war consensus

after ww2 labour and conservatives agreed on a common approach to running the economy, with full employment as the priority

1970s ‘sick man of Europe’

in the 70s, Britain suffered long periods of economic malaise (decrease), rising unemployment, low growth and frequent strikes

when was the thatcher era?

1979-1990

what were thatcher policies?

controlling inflation + adopting a free-market economic policy with reduced state involvement

4 economic shocks

war in Ukraine

COVID

Brexit

global financial crisis

what objective, if sustained, leads to all other economic macro objectives being fulfilled

low stable inflation

production

total amount of output

productivity

the rate of output / measure of effiency

labour productivity

output per person, per time period

6 other macro objectives

improving gov finances (less debt)

reducing income/wealth inequality

dealing w economic shocks

improving productivity

improving public services (NHS)

environmental concerns

fiscal/budget balance

annual difference between tax revenue and gov’t spending

fiscal deficit

tax revenue < gov spending

fiscal surplus

tax revenue > gov spending

uk productivity

less productive than our main trading partners

causes lack of investment

macro conflicts

when its impossible to achieve 2 objectives at the same time in short run.

macro conflicts example

high economic growth/lower unemployment VS high inflation and environmental damage

dealing w economic crisis VS increase in the fiscal deficit

reducing the fiscal deficit VS impacts upon public services