Macro
Objectives
1. High sustainable economic growth
2. Low unemployment/full employment
3. Low stable inflation (meeting target)
4. Low levels of income inequality
5. Low fiscal deficit and national debt
6. Low current account deficit of BoP
7. Low negative production externalities
Definitions
Real: adjusted for inflation
Nominal: not adjusted for inflation
GDP: the total value of goods and services produced in an economy over a given
period of time
GNP: the total value of goods and services produced by the domestic residents (GDP)
plus the income that residents have received from abroad, minus income claimed by
non-residents
GNI: is the sum of value added by all producers who are residents in a country
Calculation of an Index: current year price x 100
base year price
Base year – year that is used for comparison with other years, given as (=100)
Per capita = per person
GDP per capita = GDP/population
Purchasing Power Parity (PPP): how much a basket of goods costs in one country
compared to another
National Happiness/Subjective Happiness
As incomes increase, happiness increases but only up to a certain point.
After that, it’s subjective happiness that is more relevant (known as the
Easterlin paradox).
, Inflation
- Inflation: Average annual rise in the price level of the economy
Disinflation: average annual rise in the price level at a slower rate
Deflation: average annual fall in the price level of the economy
There are two measures of inflation rate: CPI and RPI
CPI inflation target is 2% +/- 1%
How is CPI calculated?
1. Looks at a basket of goods
2. From the living costs and food survey
3. It’s a price survey which uses a base year to calculate an index
4. Weights are given to those goods where the greatest proportion of income
has been spent
Limitations of the CPI
1. Doesn’t consider quality of the goods
2. Doesn’t take into account like to like goods
3. Sampling issues exist as only 60% of people reply
4. Doesn’t include mortgage interest payments or rent
Why is it necessary to update the basket of goods?
1. People can switch away from goods that have risen in price
2. Tastes and preferences change very frequently, but the basket is only
updated once a year
3. Technological advancements mean that old goods become obsolete (out of
date) and people buy new goods
Objectives
1. High sustainable economic growth
2. Low unemployment/full employment
3. Low stable inflation (meeting target)
4. Low levels of income inequality
5. Low fiscal deficit and national debt
6. Low current account deficit of BoP
7. Low negative production externalities
Definitions
Real: adjusted for inflation
Nominal: not adjusted for inflation
GDP: the total value of goods and services produced in an economy over a given
period of time
GNP: the total value of goods and services produced by the domestic residents (GDP)
plus the income that residents have received from abroad, minus income claimed by
non-residents
GNI: is the sum of value added by all producers who are residents in a country
Calculation of an Index: current year price x 100
base year price
Base year – year that is used for comparison with other years, given as (=100)
Per capita = per person
GDP per capita = GDP/population
Purchasing Power Parity (PPP): how much a basket of goods costs in one country
compared to another
National Happiness/Subjective Happiness
As incomes increase, happiness increases but only up to a certain point.
After that, it’s subjective happiness that is more relevant (known as the
Easterlin paradox).
, Inflation
- Inflation: Average annual rise in the price level of the economy
Disinflation: average annual rise in the price level at a slower rate
Deflation: average annual fall in the price level of the economy
There are two measures of inflation rate: CPI and RPI
CPI inflation target is 2% +/- 1%
How is CPI calculated?
1. Looks at a basket of goods
2. From the living costs and food survey
3. It’s a price survey which uses a base year to calculate an index
4. Weights are given to those goods where the greatest proportion of income
has been spent
Limitations of the CPI
1. Doesn’t consider quality of the goods
2. Doesn’t take into account like to like goods
3. Sampling issues exist as only 60% of people reply
4. Doesn’t include mortgage interest payments or rent
Why is it necessary to update the basket of goods?
1. People can switch away from goods that have risen in price
2. Tastes and preferences change very frequently, but the basket is only
updated once a year
3. Technological advancements mean that old goods become obsolete (out of
date) and people buy new goods
