Summary Macroeconomics LU5 Chapter 13

LU5 Chapter 13: Measuring the performance of the economy


LO1: Explain the five main macroeconomic objectives
LO2: Define the gross domestic product (GDP)
LO3: Explain the difference between nominal GDP and other national accounting
concepts
LO4: Measure employment and unemployment
LO5: Measure the consumer price index
LO6: Measure the links with the rest of the world through the balance of payments
LO7: Explain the measures of inequality in income distribution in the South African
context

, LO1: Explain the five main macroeconomic objectives


1. Economic growth
 In growing economy – total production of goods and services increases from
one period to next
 If population growing but no economic growth  not enough jobs and low
living stds
 Expressed in GDP


2. Full employment
 Ideal: county’s factors of production to be fully employed – labour
 Macro level: unemployment is a threat to social and political stability
 Economic growth can help unemployment levels decrease
 Measure using unemployment


3. Price stability
 Objective is to keep inflation as low as possible
 Measure using consumer price index


4. External stability/ balance of payments
 High degree of interdependence btw countries
 Must balance imports with exports (earn foreign currency by exporting to pay
for imported goods)
 Measure using balance of payments


5. Equitable (socially acceptable) distribution of income
 Highly unequal distribution of income leads to social and political conflict
 NB effects on structure and development of the economy
 Measure using the Lorenz curve, Gini coefficient or the quantile ratio