2.1.1 The objectives of government economic policy

• What are the four main macroeconomic objectives?

  Economic growth, Price stability, Low unemployment and Balance of payments.
• What is short run economic growth?

  Growth of real output due to using idle resources, taking up the slack in the economy.
• What is long run economic growth?

  An increase in the potential output of an economy over a long period of time.
• What is GDP?

  The real value of all goods and services / level of output produced by an economy over a period of time.
• What is real GDP?

  GDP adjusted for inflation
• What is nominal GDP?

  GDP at market prices, not adjusted for inflation
• Nominal GDP is also called money GDP
• How much had real GDP fallen by in the USA from 1929-1932?

  31%
• How many Americans lost their jobs from 1929-1932 in the Great Depression?

  13 million
• What does full employment mean in Beveridge terms?

  3% or less of the labour force is unemployed
• What is full employment in free-market definition?

  Number of workers who employers are willing to hire is equal to the number of people wanting to work.
• What is claimant count?

  The measurement of levels of unemployment according to the amount of people claiming unemployment benefits.
• What is the Labour Force Survey?

  A quarterly sample of households in the UK that provides information of people's labour market status.
• What is inflation?

  A continuing rise in the average price level.
• What is deflation?

  A continuing fall in the average price level.
• What is disinflation?

  When the rate of inflation is falling but still positive (rising but slowly)
• What is the price index?

  An index number showing the change in prices of a basket of goods and services over a period of time compared to the base.
• What is the consumer price index?

  Measure of consumer price inflation from the price increase of a basket of over 700 consumer goods or services
• What is the CPI used for?

  indexation of state pensions and welfare benefits and to set a monetary policy target
• What is the RPI used for?

  Uprating each year the cost of TV and motor vehicle licences
• What is indexation?

  Adjusting items such as pensions and welfare benefits to the changes in the price level.
• What is the inflation target?

  2%
• What is the balance of payments?

  Record of all currency flows in and out of a country over a period of time
• What is the current account?

  The measure of exports and imports
• What is the balance of trade?

  The difference between the value of exports and imports
• What is a balance of trade deficit?

  Value of imports exceeds value of exports
• What is a balance of trade surplus?

  Value of exports exceeds value of imports.
• What is capital flow?

  When residents of one country acquire capital assets located in other countries.