MACROECONOMIC PERFORMANCE

what is the difference between short run economic growth and long run economic growth?

SR - growth of real output from using idle resources eg labour
LR - an increase in the economy's potential level of real output - outwards shift on PPF

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what is GDP?

gross domestic product - sum of all goods and services, or level of output, produced in the economy over a period of time eg a year

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what is the difference between real GDP and nominal GDP?

real - measure of all goods n services in an economy, adjusted for price changes or inflation
nominal - measured at the current market prices, without removing effect of inflation

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how can shirt run growth be shown on an economy's potential possibility frontier ?

shown by a move from a point inside the PPF1 to on the PPF1
whereas long run shows a shift out from PPF1 to PPF2

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what are the 7 main macro objectives ?

1. sustainable economic growth (increase in REAL gdp)
2. low unemployment
3. price stability - low n stable inflation
4. satisfactory balance of payments
5. stable current account - exports r promoted, improve international competitiveness
6. low inc

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what are side effects of sustainable economic growth?

leads to rising real incomes - higher living standards/welfare - higher disposable income - increase consumption - increase ad - more growth for economy
But could lead to demand pull inflationary pressures or inflation is grows too fast which is why gov

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how is price stability / inflation measured most commonly?

CPI (consumer price index) - calculates the average price increase of a basket of 700 goods and services

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what is the UKs target of inflation ?

2%

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what is meant by a satisfactory balance of payments?

avoidance of an external deficit which might create exchange rate crisis

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what method is used to measure inequality ?

gini coefficient

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what is a fiscal deficit ?
how do governments aim to reduce the fiscal deficit?
why is high interest payments on national debt bad?

when government spending is more than it receives in tax revenue in a given time
- governments must borrow but aim to reduce amount of borrowing
- high opportunity cost - could be spent on education, hospitals etc - national debt is public debt

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what is a recession ?

a fall in real GDP for 6 months or more - 2 consecutive quarters

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what is the claimant count ?

method of measuring unemployment according to people who are claiming unemployment related benefits (jobseekers allowance)

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what is a problem with the claimant count ?

can underestimate unemployment bc some people are eligible but do not claim because of social stigma, not knowing they can claim and not needing to due to savings

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what is the quarterly sample survey of households in the uk, that provides info on the UK labour market called?

labour force survey
measures unemployment

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what is the balance of payments ?

a record of all the currency flows into and out of a country in a particular period of time?
THINK - cash flow but currency flow for an economy

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difference between balance of trade deficit and balance of trade surplus ?

deficit - value of country's imports exceeds the money value of country's exports
surplus - value of country's exports exceeds value of imports

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formula for rate of increase in real GDP

rate of increase for nominal GDP - rate of price inflation

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what are the four features of the current account of the balance of payments

exports, imports, income flows, or primary income transfers or secondary income

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when does a trade off exist ?

when two or more desirable objectives are mutually exclusive - creates policy conflict

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explain the conflict between the low inequality objective and the governments sustainable fiscal debt objective?

1. might try to reduce unemployment by spending more on training so ppl have skills needed - reduce structural unemployment - in SR may increase fiscal deficit as G is increasing
2. may try to reduce inequality by raising taxes on rich (progressive) - co

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what is the conflict faced when trying to increase economic growth n reach full employment

control of inflation - more people are employed - living standards and economic welfare increase - higher confidence - more consumption - inflationary pressures on prices to meet demand - firms charge higher prices - higher inflation rates

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what are three possible trade offs when economic growth is increasing

1. satisfactory balance of payments or exchange rates
2. control of inflation
3. greater income inequality - if grow too fast

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AO4 - HS2 is a highspeed rail project, announced in 2017 - currently expected to be completed by 2033, over £30bn over initial budget.
what could be 3 reasons as to why its still running?

1. pos externalities could be huge for the country n it would be under consumed in free market
2. personal incentives of ppl in charge
3. increase in economic growth from improved transport links could be large

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what is inflation defined as

increase in the gpl - general price level over a given period of time

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what is GDP per capita

better way to measure economic strength
per capita means divided by the population

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what is the difference between the two performance indicators - lead indicator and lag indicator

lead - info about the future state of the economy
lag - info about past n possibly current state of economy
both provide info for judging the success or failure of a particular type of gov policy such as fiscal or monetary

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what formula do we use to calculate an index number ?

(new value / base year) x 100

first you need to choose a base year eg 2004. the base year is given an index number equal to 100
which will then e compared to the new value eg the index number for 2009

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what is meant by weighting in the construction of a price index such as the CPI?

weighting is when we give more importance to a price change to some products then others for example a 10% increase in price of petrol is more important than a 10% increase in the price of tea

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if the base year data (index = 100) for a firms revenue is £200,000, what is the index number for revenue equalling £600,000?

£300,000

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if the price level increases from an index of 120 to 132, what does this indicate ?

an increase in price of 10%

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when was the last time the UK experienced deflation ?

March 1960

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what is a limitation of national income data ? (GDP)

2 countries can have same level of GDP (national income) but the country with a larger population will have a lower average GDP per person - improve data by looking at GDP per capita
2 countries could have same GDP but cost of living could be higher in 1

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what is it called when at a certain exchange rate it is cheaper to buy goods in 1 country than another, so businesses buy goods in cheaper country n sell it in an other for profit?

arbitrage - forces prices n exchange rates to allign over time

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what is PPP - purchasing power parity?

an additional exchange rate adjustment that equalises the price of internationally traded goods across countries
remains fairly constant all year round so easily comparable.
knowing PPP will allow tracking n predicting exchange rate relationships - help

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the base year data is index = 100 and the price is £60. what is the price if the index number changes to 120 ?

100 to 120 is a 20% increase
20% of 60 is 12
60 + 12 = 72
new price is £72

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MACROECONOMIC PERFORMANCE

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