Macro (6): Measurement of macroeconomic performance

• Macroeconomics


  Involves the study of the whole economy at the aggregate level.
• Policy objective


  A target or goal that policy-makers aim to "hit"
• Short-run economic growth


  Growth of the real output results from using idle resources, including labour, thereby taking up the slack of the economy
• Long-run economic growth


  An increase in the economy's potential level of real output, and an outward shift of the economy's PPF
• GDP


  The sum of all goods and services, or level of output, produced in the economy over a period of time (typically a year)
• Real GDP 


  A measure of all the goods and services produced in an economy, adjusted for inflation.

  The adjustment transforms changes in nominal GDP, which is measured in money terms, into a measure that reflects changes in the total output of the economy.
• Nominal GDP


  GDP measured at the current market prices, without removing the effects of inflation.
• Recession


  A fall in real GDP for 6 months or more
• Full employment


  [Beveridge] 3% or less of the labour force unemployed.

  [Free-market]

  • level of employment occurring at the market-clearing real wage rate
  • where the number of workers whom employers wish to hire equals the number of workers wanting to work
• Claimant count


  The method of measuring unemployment according to those people who are claiming unemployment related benefits ie. Jobseeker's Allowance
• Labour Force Survey


  A quarterly sample survey of households in the UK.

  • Purpose is to provide info on the UK Labour Market
  • Seeks info on respondents' personal circumstances & their labour market status during a period of 1-4 weeks
• Inflation


  A persistent or continuing rise in the average price level
• Deflation


  A persistent or continuing fall in the average price level
• Disinflation


  When the rate of inflation is falling, but still positive
• Price index


  An index number showing the extent to which a price, or a "basket" or prices, has changed over a month, quarter or year in comparison with the prices in a base year
• Consumer Price Index (CPI)


  The official measure used to calculate the rate of consumer price inflation in the UK.

  • The CPI calculates the average price increase of a basket of 700 different goods and services.
• Retail Price Index


  An older measure used to calculate the rate of consumer price inflation in the UK.

  • used alone for uprating each year the cost of TV and motor vehicle licenses
  • used with CPI with taxes on goods
• Indexation


  The automatic adjustment of items such as pensions and welfare benefits to change in the price level, through the use of a price index
• Balance of payments 


  A record of all the currency flows into and out of a country in a particular period of time, typically a year
• Current account of the balance of payments

  Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports, together with income and transfer flows
• Exports


  Domestically produced goods or services sold to residents of other countries
• Imports


  Goods and services produced in other countries and sold to residents of this country
• Balance of trade


  The difference between the money value of a country's imports and its exports

  • the largest component of a country's balance of payments on current account.
• Balance of trade deficit


  The money value of a country's imports exceeds the money value of its exports
• Balance of trade surplus


  The money value of a country's exports exceeds the money value of its imports
• Balanced budget


  When government spending equals government revenue, which is mostly tax revenue
• Budget deficit


  When government spending is greater than government revenue
• Policy conflict


  Occurs when two policy objectives cannot both be achieved at the same time

  • the better the performance in achieving one, the worse the performance in achieving the other
• Trade-off between policy objectives

  Although it may be impossible to achieve two desirable objectives simultaneously, policy markers may be able to choose an acceptable combination lying between the two extremes (eg. 2% inflation, 4% unemployment)
• Keynesian economists


  Followers of the economist John Maynard Keynes

  • generally believe that governments should manage the economy, particularly through the use of fiscal policy
• Pro-free market economists


  Opponents of Keynesian economists

  • dislike government intervention in the economy
  • much prefer the operation of free markets
• Monetary policy


  The use by the government and its agent, the Bank of England, of interest rates and other monetary instruments to try to achieve the government's policy objectives
• Fiscal policy


  The use by the government of government spending and taxation to try to achieve the government's policy objectives
• Performance indicators


  Provides information for judging the success or failure of a particular type of government policy such as fiscal policy or monetary policy
• Index number


  A number used in an index, such as the CPI, to enable accurate comparisons over time to be made.

  • base year index number is typically 100
  • percentage increases = index number rises above index number recorded of previous year
  • percentage decreases = index number falls below the last index number recorded of previous year
• Price stability


  Controlling inflation to ensure the general level of prices is consistently rising slowly, achieving a low rate of inflation with the government's target of 2%