Measurement of Macroeconomic Performance

• What are the four main macroeconomic objectives of the government?

  Economic growth, minimizing unemployment, price stability, balance of payments
• What is the long run trend of economic growth in the UK?

  About 2.5%
• What do governments in emerging markets prioritize before economic growth?

  Economic development
• What are the benefits of increasing economic development in emerging markets?

  Improved living standards, life expectancy, literacy rates
• What unemployment rate do governments aim for to account for frictional unemployment?

  Around 3%
• What is the UK government's inflation target?

  2%, measured with CPI
• What happens if the inflation rate falls 1% outside the target?

  The Governor must write a letter to the Chancellor
• What does a balance of payments equilibrium on the current account indicate?

  The country can sustainably finance the current account
• What is the purpose of a balanced government budget?

  To control state borrowing and national debt
• Why is greater income equality important?

  It leads to a fairer society
• How can economic growth lead to inflationary pressures?

  AD increases faster than AS during growth
• What effect does high consumer spending during economic growth have on the current account?

  It can worsen the current account deficit
• What is a potential outcome of reducing a budget deficit?

  Less economic growth due to reduced AD
• What negative externalities can high rates of economic growth cause?

  Pollution and usage of non-renewable resources
• What does the Phillips curve illustrate?

  The trade-off between unemployment and inflation

  
• How can supply side policies affect structural unemployment?

  They can reduce structural unemployment without raising wages
• What are the main macroeconomic objectives of the government?

  • Economic growth
  • Minimizing unemployment
  • Price stability
  • Stable balance of payments on current account
• What are the potential conflicts and trade-offs between macroeconomic objectives?

  • Economic growth vs inflation
  • Economic growth vs current account
  • Economic growth vs government budget deficit
  • Economic growth vs environment
  • Unemployment vs inflation
• What does GDP measure in an economy?

  Quantity of goods and services produced
• What does a rise in economic growth indicate?

  Increase in national output
• What is real GDP?

  GDP adjusted for inflation
• If the economy grew by 4% and inflation was 2%, what was real economic growth?

  2%
• How is real GDP per capita calculated?

  Real GDP divided by population
• What does real GDP per capita measure?

  Average output per person in an economy
• Why is real GDP per capita useful?

  For comparing relative performance of countries
• What do CPI and RPI measure?

  Measures of inflation in the UK
• What does the Consumer Prices Index (CPI) measure?

  Household purchasing power
• How is the CPI basket of goods created?

  Based on the Family Expenditure Survey
• Why are goods weighted in the CPI basket?

  According to income spent on each item
• How often is the CPI basket updated?

  Each year
• What is RPI?

  Alternative measure of inflation including housing costs
• Why does RPI tend to have a higher value than CPI?

  It includes housing costs
• What is a challenge in measuring unemployment?

  Some unemployed may not reveal their status
• What are the two main measures of unemployment in the UK?

  The Claimant Count and ILO/LFS
• What does the Claimant Count measure?

  Number of people claiming unemployment benefits
• What must individuals do to be counted in the Claimant Count?

  Prove they are actively looking for work
• What does the ILO Labour Force Survey (LFS) ask people?

  If they meet specific unemployment criteria
• What are the criteria for the ILO Labour Force Survey?

  Out of work for 4 weeks, able to start in 2 weeks
• Why does the LFS give a higher unemployment figure than the Claimant Count?

  Includes part-time unemployed who don't claim benefits
• How is productivity defined?

  Output per worker per period of time