Government economic policy objectives and indicators of national economic performance

Macro objectives
1. Unemployment:low level of unemployment (willing and able to work at going wage rate in a suitable job but can't find work despite active search)
  1. claimant count=measures unemplymt by counting no. of people claiming JSA on a particular day.
  2. why? technology, disability, redundancy, discrimination, competition, lack of availability, inheritance, recession
  3. types
    1. structural=changing consumption pattens and technology reduces need for a certain type of work/er
      1. strategies:provide housing/relocation, subsidised travel, subsidise firms, retraining programmes
      2. causes:geograph/occupational mobility, skills for only 1 type of job, change in taste/pref
    2. cyclical=from downturn in recession where AD in the economy is low so businesses have to make redundancies
    3. frictional=moving between jobs in search of a more enjoyable job. redundant until job found
      1. strategies:reduce benefits,encourage retraining,increase job awareness,increase link between employers/jobseekers (newspaper)
    4. seasonal=in industries have fluctuations in demand at diff times of the year e.g. tourism
      1. strategies: provide them w training, company links, encourage offseason work, increase info abt vacancies,reduce umemp benefits
  4. full=where those wanting and able to work can find employment at the going wage rate- when only natural (frictional,seasonal,structural)
2. Price stability:low and stable rate of inflation(increase in price of goods over time/rate at which purchasing power falls)
  1. nominal income=expressed at current prices
  2. real income=after adjusting for inflation
  3. cpi=lower inflation rates. rpi=includes mortgages and tax
  4. hyperinflation=when inflation is considered to be out of control i.e. increasing at a rate greater than it usually would
  5. causes
    1. demand pull= increase in demand for products/services
    2. cost push= rise in costs of input
  6. consequences
    1. shoe leather:cost of having to find best place to put money to maximise its return during high inflation
    2. administrative:costs of having to readjust prices and accounts due to inflation (wage negotiation rises)
    3. inflationary noise:distortion of prices as signal mechanism
    4. random redist of income:people can gain/lose due to their bargaining power
    5. fiscal drag:income dragged into higher tax bracket as not adjusted for inflation
    6. inflation led inflation:hearing new of info cause it to happen now
    7. loss of international competitiveness:causes exports to slow and imports to increase
    8. menu:costs of having to reprint menus and price lists due to high inflation
3. Income redistribution:an equitable distribution of income
4. External stability:favourable balance of payments position
  1. credit=money flowing into the UK
  2. debit=money flowing out of the UK
  3. current account surplus= imports<exports, outflow<inflow. the balance is positive
  4. current account: trade in goods(exports and imports), income(profit going into UK,wage of foreign workers), current transfers(gift aid and grants)
5. Economic growth:steady rate of increase of national output
GDP:the total of all economic activity in a country, regardless of who owns the producive assets
1. Nominal gdp=the value of the country's outputs using today's prices
2. Calculating real gdp: ( Nominal deflator / GDP deflator ) x 100
3. Real gdp=the value of the couture's output after adjustments for inflation are made
4. causes for reduce in GDP despite more workers being employed
  1. reduction in spending of disposable income
  2. hidden unemployment (casual workers)
  3. workers are less productive
  4. underemployment (when you work below productive potential)
Economic growth measures
1. economic growth=increase in the amount of goods and services over time
2. economic development=standard/quantity of living in a country
3. deflationary gap=means that unemployment exists here
4. problems with measuring growth
  1. output=double counting, value of raw material and the final product is counted
  2. income=some people don't pa tax, benefit and transfer payments
  3. expenditure=exp must be included, imp must be excluded
  4. assumes no leakages/injections
5. production = goods that are manufactured
6. productivity=output of worker per hour
Exchange rates: value of one currency expressed in the form of another
1. floating exchange rate:forces of demand and supply for a currency determine the daily value of one currency against another
2. effect of appreciation in value of the £ on...
  1. consumers=benefit from abroad being cheap
  2. businesses=demand falls, cheaper abroad
  3. inflation=low inflation>increased investment>fall in £
  4. unemployment=increase; easier to employ people from abroad/lack of demand of foreign customers, net exports decrease
  5. growth contracts
3. fixed exchange rate=value of one currency is fixed to value of another currency/avg value of selection of currencies
4. ER and export prices=to overcome strong pound:lower prices and costs,invest more,produce inelastic goods
5. factors affecting..
  1. competitiveness of UK products=incr competition>low prices in UK than abroad>higher demand for £> value of £ depreciates
  2. rising incomes abroad=more willing to buy UK goods > higher demand for £ > £ depreciates in value
  3. rising domestic incomes=buy more from abroad > value of £ depreciates
  4. rise in domestic interest rate=more foreign investment into UK > convert their money to save into UK banks > demand for £ inc > exchange rate increase
  5. FDI=money into UK> increased demand for £> supply decreases> exchange rate increases
  6. speculation=incr demand for currency (forecasting) > decrease in supply > exchange rate increases

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Government economic policy objectives and indicators of national economic performance

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	Created by raid001 over 12 years ago