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Measurement of Macroeconomic performance - Coggle Diagram
Measurement of Macroeconomic performance
Economic objectives
1) Strong and sustainable economic growth - output of an economy which determines average incomes
2) Low and Stable inflation - rise in average price of goods over time
3) Low unemployment to full employment - all economically active individuals in jobs
4) Balance of payments equilibrium - income from exports to equate spending on imports
Economic objectives rationale
1) Strong and sustainable growth - individuals consistently improve their standard of living, life expectancy increases and literacy rates improve
2) Low and stable inflation - firm are encentivised to improve growth, whilst consumers are encouraged to spend
3) Low unemployment to full employment - individuals use their skills to produce output and earn an income
Balance of payments - income from selling goods and services abroad matched our spending on foreign good and services
Other economic objectives
Balanced government budget - income from taxes matches government spending on the economy
Greater income equality and low poverty - everyone has access to basicneeds and has a good quality of life
Protect the environment - achieve economic progress without damaging our planet
Economic growth
Defined as
An increase in:
Real GDP (actual growth) and short economic growth
Potential growth - long run economic growth
GDP
Measuring GDP
Output - total value of goods and services produced by an economy
Expenditure - total value of purchases on good and services
Income - total income generated by producing good and services
GDP - Gross domestic growth is used to measure economic growth
Measures the overall heatlh of the economy
Total value of goods and services
GDP = consumption + Investment + govt spending + net exports
Economic measures
Real v Nominal
Real values adjust for inflation and reflect changes in the quantity of goods and services
Nominal values don't adjust for inflation and represent current market prices
Total vs Per Capita
Total - total values represent the aggregate sum of a variable for a given population or area
Per Capita - Represent the average amount per person and are calculated by dividing the total by the population
Value vs Volume
Value - Value represents the monetary worth of good and services produced
Volume - Measures the physical quantity of goods and services produced, disregarding their monetary value
GDP
GDP index numbers
Percentage changes can be represented by index numbers to make comparisons over time
Year 1 = 100
An increase in GDP is expressed as a number above 100
A decrease in GDP is expressed as a number below 100
GDP is usually measured as a rate of change
Real vs nominal
Nominal - current market value of all the goods and services produced, not adjusted for inflation
Real GDP - current market value of all goods and services adjusted for inflation
Real GDP = Nominal GDP x price deflator
GDP deflator
Measure of the level of prices (inflation) of goods and services produced domestically
Used to convert nominal to real GDP
Expressed as an index number
105 shows an increase in prices of 5%
Real GDP = (Nom GDP/ GDP deflator) X 100
GDP per capita
Total GDP/ population
Gives an idea of income per person
PPP
Purchasing power parity
Converting one currency into another to buy the same amount of goods
When we look at living standards, any income should be considered in relation to what you can buy in that country
Even though a country might have a low GDP, if there is a low standard of living then their money will have a higher purchasing power
GDP V GNP
GDP - Value of goods and services produced within a country's geographical border
GNP - Gross National product - value of goods and servies produced by the citizens of a country, irrespective of where they're located
GNI - Gross national income - GDP + net property income from overseas
GDP includes income of foreign multinationals
GNP excludes income earnt when profit is sent back to another country