Macroeconomics Performance

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Chapter 11

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Macroeconomics Performance
1 Trade-off
1.1 Opportunity cost such as at OB
1.1.1 Imports increase and exports decrease Due to less price competitive Due to inflationary pressure and increased wages As imports appear cheaper due to increased income
2 Inflation
2.1 Persistent increase in the level of prices occurs over time
2.2 Caused by increased costs .e.g wages, scarce resources
2.3 Too high inflation
2.3.1 Unemployment increases
2.3.2 AD will fall Actual growth falls below trend
2.3.3 If prices increase quicker elsewhere Reduced demand for exports
2.4 Target for inflation set by government
2.4.1 Bank of England ensure to meet target Control AD depending on inflation
2.5 Measured using Index numbers
2.5.1 Designed to measure the magnitude of economic changes over time
2.5.2 A base year is chosen and the index number 100 is given to price of chosen goods and services
2.6 Retail Price Index
2.6.1 Main domestic measure of inflation in the UK and calculated by Office of National Statistics
2.6.2 Measures average change from month to month in the price of goods and services consumed by households Kept up-to-date with entry of new goods and services by replacing old products to reflect change in consumption pattern
2.7 Consumer Price Index
2.7.1 Used in euro area and can be used to compare with European countries
2.7.2 Does not include changes in house prices and related areas
3 International Competitiveness
3.1 National assets determines the trade
3.1.1 Increased sales aboard Boost AD Improves output gap Can lead to increased imports Reduced spending in economy to control imports Might cause rising unemployment&slow growth
3.2 UK national assets
3.2.1 Financial services
3.2.2 High valued manufactured goods
4 Economic Indicators
4.1 Gross Domestic Product
4.1.1 Diagram Negative output gap at OA High unemployment & slow growth Opportunity cost of waste of scarce resources Living standards fall Growing benefit expenditure Positive output gap at OB Rising inflation and lower unemployment
4.1.2 Used to measure the value of all goods and services produced in the economy Measured as % UK expected increase is 2.5-2.75% Manufacturing, agriculture and services industries
4.1.3 Nominal GDP-output figures not adjusted for inflation
4.1.4 Real GDP-adjusted for inflation
4.2 Economic statistics that provide information about the expansions and contractions of business cycles
4.3 Gross National Product
4.3.1 Includes incomes received from aboard minus the amount paid out of the economy to overseas
4.4 GDP per capita
4.4.1 GDP divided by population
4.4.2 Better indicator for measuring living standards as it shows how much income earned by average person have risen over time