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Macroeconomic Policy Objectives
Sustainable economic growth, low and stable inflation, full employment, balance of trade, budget balance, and economic stability. There are a number of economic performance indicators which show whether they have been achieved.
Production
Is any economic activity which leads to a flow of goods and services for which people are willing and able to pay. It can be categorised as primary, secondary and tertiary production.
Gross Domestic Product
Is a measure of the final output of goods and services produced by factors of production - domestically and foreign owned - located within an economy.
Gross National Product
Is GDP plus Net Income from Investments Abroad.
Nominal GDP
Measures the total value of the final output of goods and services using current prices: i.e. the prices that existed during the year being measured. It is a measure that has not been adjusted for inflation.
Real GDP
Measures the total value of the final output of goods and services using constant prices: i.e. the prices that existed during some given or 'base' year. It is a measure that has been adjusted for inflation.
Economic Growth
Is an increase in the actual and potential output of goods and services produced by an economy. The rate of economic growth is measured by the percentage increase in real GDP pa.
Types of growth
Short Run economic growth is an increase in the actual output of goods and services; Long Run economic growth is an increase in the actual and potential output of goods and services; Trend economic growth is the average rate over a given period of time, usually the length of the cycle.
Inflation
Is an increase in the general price level that is sustained over a period of time. The rate of inflation is measured by the percentage increase in the CPI pa.
RPI Measure Inflation
Is the weighted average of the prices in a representative basket of goods and services - 650 items - at a point in time, expressed as an index number. It is based on the spending habits of households taking part in the Family Expenditure Survey. It measures the cost of living.
CPI Measure Inflation
Is the weighted average price of a basket of goods and services as bought by a representative household excluding housing costs, esp. mortgage interest payments and Council Tax: i.e. it is similar to the RPI measure. It is based on the European HICP measure.
Inflation Target
Is an inflation rate, as measured by the CPI, of 2%+/-1% pa. The Bank of England must attempt to achieve this target each month.
Claimant Count Measure Unemployment
Is those who register as unemployed and are eligible to receive benefits: i.e. the JSA.
Unemployment
Is those people who are officially registered as seeking employment and are 'able, available and willing to work at the going wage rate in any suitable job'. The unemployment rate is measured as a percentage of the labour force.
LFS/ILO Measure Unemployment
Is a survey of those who are without a paid job, are available to start work within two weeks and have been looking for work at some time in the previous four weeks.
Full Employment
Exists where there is a suitable job available for anyone who is seeking employment and is 'able, available and willing to work at the going wage rate'. This occurs where the number of unemployed equals the number of vacancies (U = V).
International Trade
Is the buying and selling of goods and services across national frontiers, between the residents of different countries.
Free Trade
Exists where international trade takes place unimpeded by any restrictions: i.e. market forces operate to achieve the most efficient allocation of resources.
The Balance of Payments
Is a record of all the financial transactions that take place between residents of the UK and residents of the rest of the world over a given period of time, usually one year - although data is published each month.
The Balance of Payments on Current Account
Records the financial transactions which relate to the trade in goods and in services, to investment income and to current transfers. It measures the extent to which our economy is paying its way with the rest of the world.
The Balance of Trade
Is exports of goods and services minus imports of goods and services.
A Balance of Payments Deficit
Occurs where on current account the credit items are less than the debit items: i.e. exports of goods and services are less than imports of goods and services (including net income and transfers). This implies that the country will be borrowing from abroad and/or selling its assets abroad; e.g. the USA.
A Balance of Payments Surplus
Occurs where on current account the credit items are more than the debit items: i.e. exports of goods and services are more than imports of goods and services (including net income and transfers). This implies that the country will be lending abroad and/or buying assets from abroad; e.g. China.
The Budget
Is an estimate of public expenditure and tax revenue for a period of time, usually a year. It is delivered by the Chancellor of the Exchequer, usually in March.
Public Expenditure
Is expenditure by the government on goods and services such as defence, education and the NHS and on transfer payments such as welfare benefits
Taxation
Is a compulsory levy charged on incomes, profits, and expenditure on goods and services
Direct Taxation
Is a compulsory charge imposed by the government on income and profits earned by individuals; e.g. income tax, corporation tax.
Indirect Taxation
Is a compulsory charge imposed by the government on the sale of goods and services; e.g. excise duties, VAT.
Budget Balance
Is the difference between the levels of tax revenue (T) and public expenditure (G). There is a budget surplus if T > G; there is a budget deficit if T < G.
Economic Stability
Is a situation in which the rates of economic growth and of inflation are stable and predictable. This should reduce uncertainty. (No more 'boom and bust'.)
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