4.2.1 - Measurement of Macroeconomic performance

Involves the study of the whole economy at aggregate level

• economic growth - increasing the amount of goods and services at a sustainable rate (2%)

• Full employment - target of low unemployment is 4%

• Limit inflation- 2%

• Satisfactory balance of payments- imports/exports

Gross domestic produce is the sum of all goods and services produced in the economy over a period of time e.g a year

A measure of all goods and services produced in an economy adjusted to inflation

GDP measured at the current market prices, not adjusted to inflation

Economic growth

• National Expenditure/AD = the revenue of all products sold

• National Output = value added to each item at different sectors of production

• National Income = amount of money taken in revenue across the economy

• measure of living standards and is the GDP figure per person

• used to indicate a country’s standard of living

• the higher the GDP per capita, the higher the standard of living

Total GDP/ Population size

GNI - Gross national income - the GDP plus net income from abroad

GNP- Gross national product - total output of the citizens of a country whether or not they’re residents

• PPP- Purchasing power parity, rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country, eliminates differences in price levels

• Used to show LS by showing the true worth of the two currencies when comparing LS in two countries

GDP = economic growth

GDP Per Capita = country’s standard of living

• extent of the hidden economy - economic activity that doesn’t appear in official figures

• Income inequality between different countries

• Public spending - some governments provide more benefits (unemployment benefits)

• Number of hours workers have to work per week, working conditions etc

number of people actively seeking for a job but are unable to obtain one

• claimant count - method of calculating unemployment according to the number of people claiming Jobseeker’s Allowance

• Labour force survey - quarterly sample survey that provides info on UK labour market and market status

• poor economic growth

• lower incomes due to less spending

• Lower rates of consumer confidence

A =

• data is easy to obtain, there’s no cost in collecting the data

• Updated monthly so it’s always current

  D =

• Can be manipulated by the government to make it seem smaller

• Excludes those people who are looking for work but aren’t able to claim JSA

A =

• more accurate than CC

• Internationally agreed measure for unemployment so easier to make comparisons with other countries

  D=

• less up to date than CC

• Expensive to collect and put together the data

• Sample may be unrepresentative of the population as a whole

• provide info from recent performance for judging the success or failure of a particular gov policy

• real GDP

• real GDP Per capita

• CPI

• RPI

• Measures of unemployment

• Productivity

• Balance of payments on the current account

• provide info about the future state of the economy

• Provides info about consumer confidence

• Examples include statistics on the number of house building starts

• provide info about the past and current economic performance and the extent to which policy objectives have been achieved

• Examples include data on GDP, current employment/unemployment

• persistent rise in the average price level

• continuing tendency for the average price level to fall

• rate of inflation falling at a positive rate

• automatic adjustment of items to changes in the price level through the use of a price index

• CPI - consumer prices index - official measure used to calculate the rate of consumer price inflation.

• Calculates the average price increase of a basket of 700 goods/services

• Retail Price index - measure used to calculate the rate of consumer price inflation

1- a survey of around 6000 households( Living Costs and Food Survey.)

• used to find out what people spend their money on, e.g. petrol. The survey also shows what proportion of income is spent on these items.

• used to work out the weighting of each item — for example, if 20% is spent on transport, then a 20% weighting will be given to transport

• 2 - survey is based on prices — measures the changes in price of 700 of the most commonly used goods and services (the ‘basket of goods’).

• items chose based on Living Costs and Food Survey (changes over time)

• ensures that the basket always reflects what the average household might spend its money on.

• price changes(2) X weighting(1)

• converted to an index number

1) Some items are excluded from the CPI:

• Mortgage interest payments

• Council tax

2) A slightly different formula is used to calculate the CPI.

3) A larger sample of the population is used for the CPI.

• The RPI excludes all households in the top 4% of incomes. The CPI doesn’t include mortgage interest payments or council tax.

• The information given by households in the Living Costs and Food Survey can be inaccurate.

• The basket of goods only changes once a year — so it might miss some short-term changes in spending habits.

• used to help determine wages and state benefits.

• Employers and trade unions use them as a starting point in wage negotiations.

• government uses them to decide on increases in state pensions, and other welfare benefits.

• used to measure changes in the UK’s international competitiveness.

• If the rate of inflation is higher in the UK than in the other countries it trades with, then UK goods become less price competitive, as they’ll cost more for other countries to buy.

• So — exports will fall, and imports, which will be made relatively cheaper by domestic inflation, will increase.

Importance attached to certain items in the basket

• sell more exports than we buy in

• Exports > imports

• Deficit is the opposite

• provides consumers with a wider choice of goods

• Cheaper/ higher quality imports/ raw materials

• Reduces costs

• not able to meet all objectives but setting an acceptable combination (2% inflation and 4% unemployment)

• between policy of FE and SFBOP

• Achieving FE and controlling inflation

• Increasing economic wealth and ensuring it’s equally spread

• High LS now and in the future

• a number used in an index (CPI) to enable accurate comparisons over time to be made

• Index numbers are a useful way of expressing economic date time series and comparing / contrasting information

• An index number is a figure reflecting price or quantity compared with a base value

• The base value always has an Index number of 100

• The index number is then expressed as 100 times the ratio to the base value

• making comparisons over time

• The index number for the base year is 100

• A 3% rise would mean the index number rose to 103 in Y2

Number in current year/ Number in base year X 100

• year in which a series of data begins to be calculated

• Year against the performance of an index is measured

• to assess the overall economic performance of a country

• GOVERNMENT DECISIONS - National Income helps Governments make decisions regarding fiscal, monetary and supply side policies.

• TAX RETURNS- Estimate the tax returns that are expected.

• LIVING STANDARDS - National Income helps Governments measure the standard of living within an economy.

Through the use of a Lorenz curve and the gini coefficient

Used to show income inequality

• Used measure and rank countries’ levels of social and economic development.

• combines indicators in three equally weighted sections:

• Health (as measured by life expectancy).

• Education (as measured by average and expected years in school).

• Standard of living (as measured by real GNI per capita, using the principle of purchasing power parity, PPP).

• used to measure changes in development levels over time in a country.

• used to compare the levels of development between countries.

• Countries are ranked in order with country number 1 being the highest

• Above 0.8 indicates a high level of human development.

• Between 0.8 and 0.5 suggests a medium level of human development.

• Below 0.5 shows a low level of human development.

• long life expectancy is not the same as a high quality of life

• Measuring the average number of years people spend in school doesn’t measure the quality of teaching or how well people learn what they’re taught.

• Using GNI-per-capita figures can lead to inaccurate comparisons — for example, GNI per capita doesn’t include the hidden economy, and this tends to make up a larger proportion of the economy in less developed countries.

• The HDI figure alone doesn’t measure the extent of inequality in a country — a country with a satisfactory HDI rank might have a few very wealthy people and a large number of very poor people.