Macroeconomic objectives: Meaning and Measurement

• Macroeconomics is the study of the economy as a whole
• What are the macroeconomic objectives

  Low and stable inflation, low unemployment, positive economic growth, balance of payments stability/equilibrium
• Balance of Payments

  Money exiting compared to money earned by a country (In = Out when at equilibrium)
• Secondary/minor macroeconomic objectives

  Stable exchange rates, eradication of poverty, fairer distribution of income/wealth, reduce national debt, general economic stability
• Economic stability

  Avoidance of volatility in the main macroeconomic indicators
• Inflation


  A sustained rise in the average price level, measured by the year on year % change in the average price level
• Unemployment 


  A situation where people are out of work but actively seeking it/willing to and able to work
• Economic growth

  An increase in an economy’s output over time, measured by the percentage change in real GDP/GNP per time period
• GDP

  The value of the total output produced in an economy over a given time period (usually a year)
• When a deficit occurs, outflows > inflows
• During a deficit, the economy keeps less of its income and can grow slower
• When a surplus occurs, outflows < inflows
• During a surplus, the economy receives more income from other economies who may take action to keep their income
• Is a deficit or a surplus preferable in the long run

  Neither
• The economic cycle

  In a boom unemployment falls, in a recession it rises again
• Globalisation

  As nations are more closely linked through trade, they tend to experience booms/recessions at the same time (domino effect)
• Unemployment rate


  Those who are out of work but are actively seeking it as a % of the workforce/economically active
• Calculating unemployment rate

  ( Unemployed / workforce )*100
• Workforce/economically active


  Those that are in work or actively seeking it
• Population of the working age (in the UK)

  16 - 64
• Participation rate

  % of the population of the working age who are economically active
• Calculating participation rate

  ( Workforce / pop. of working age )*100
• 2 measures of unemployment in the UK

  Labour Force Survey , Claimant Count
• Criteria for the Labour Force Survey

  Be out of work, actively seeking work (unemployed)
• Criteria for the Claimant Count

  Eligible to claim unemployment benefits
• Method of the Labour Force Survey


  A survey for 33000 households
• Method for the Claimant Count

  Head count
• Between the Labour Force Survey and Claimant Count, which is the official measure?

  Labour Force Survey
• Who collects the data for the Labour Force Survey and the Claimant Count

  The Office for National Statistics (ONS)
• How frequently is the data for the Labour Force Survey collected

  Each quarter
• How frequently is the data for the Claimant Count collected

  Monthly
• Problems with the measurements of unemployment

  Changes to the unemployment statistic, hidden unemployment, fraudulent claims, CC underestimates unemployment, LFS may be unrepresentative
• Hyperinflation

  When inflation rates exceed 100%
• Disinflation

  When the rate of inflation falls, but is still over 0
• Deflation

  When the average price level is falling over time (rate of inflation is under 0)
• How is inflation calculated

  Index Numbers
• The Consumer Prices Index

  Each month the average price level is calculated and recorded as the CPI, by finding percentage changes we can calculate the rate of inflation
• What value is the base year in index numbers

  100
• Calculating % change when using the base year

  ( Year value - 100 )
• Calculating % change when not using the base year

  ( New - Old / Old )*100