Economics Macroeconomics
4.2.1 – Measurement of Macroeconomic Performance
4.2.1.1
Economics four main indicators to see how the economy is doing are:
1. Rate of growth
2. Rate of inflation
3. Stable Balance of payments
4. Level of unemployment
o Environmental Sustainability Other less major
o Income equity objectives
o Low amounts of Borrowing
o Raising international competitiveness
Conflicts Between Objectives in Short Run cause a Trade-Off
1. Inflation V Unemployment – when economy is reaching full capacity, the demand for workers
increases causing a wage rise and this extra cost is passed on to consumers causing cost-pull inflation
2. Economic Growth v Sustainability – new factories raises pollution levels and amount of waste. Theres
an increase in natural resource usage. Ecosystems are damaged by industrialisation
3. Economic Growth v Inflation – large price increases due to increase in demand causing high inflation.
Trying to keep inflation low can restrict growth i.e. high interest rates discouraging investment
4. Inflation v Balance of Payments – high inflation= high interest rates = more foreign investment into
banks= stronger currency= Imports cheaper than exports= larger Budget and BoP deficit
5. Economic Growth v Reduction in Wealth Inequality – Growth increase Inequality
4.2.1.2
Measuring economic growth
GDP is the measure of economic growth
• Economic growth can be measured by the change in national output over time
• National output is all goods and services produced by a country & measured in 2 ways:
o volume – quantity of good and services produced
o value – value of goods and services produced
• National output= national expenditure=national income
• Economic growth is the speed of national output
o Positive growth = booms
o Negative growth = recession
o Economic depression = sustained economic downturn
• Some GDP growth may be due to inflation
o Nominal GDP = not adjusted for inflation Nominal GDP = Quantity x Price
o Real GDP = adjusted for inflation Real GDP= Nominal GDP x 100
▪ Calculations are on the right Price index
Real GDP per Capita = Real GDP x 100
• GDP per capita indicates standard of living in a country Population
GDP per Capita = Total GDP or GNI or GNP % Change in Real GDP = Ending Real GDP – Starting GDP x 100
Population Size Starting GDP
• Higher GDP per capita means higher standard of living
• Gross National Income= GDP + net income from abroad
• Gross National Product = Total output of the citizens of a country
4.2.1 – Measurement of Macroeconomic Performance
4.2.1.1
Economics four main indicators to see how the economy is doing are:
1. Rate of growth
2. Rate of inflation
3. Stable Balance of payments
4. Level of unemployment
o Environmental Sustainability Other less major
o Income equity objectives
o Low amounts of Borrowing
o Raising international competitiveness
Conflicts Between Objectives in Short Run cause a Trade-Off
1. Inflation V Unemployment – when economy is reaching full capacity, the demand for workers
increases causing a wage rise and this extra cost is passed on to consumers causing cost-pull inflation
2. Economic Growth v Sustainability – new factories raises pollution levels and amount of waste. Theres
an increase in natural resource usage. Ecosystems are damaged by industrialisation
3. Economic Growth v Inflation – large price increases due to increase in demand causing high inflation.
Trying to keep inflation low can restrict growth i.e. high interest rates discouraging investment
4. Inflation v Balance of Payments – high inflation= high interest rates = more foreign investment into
banks= stronger currency= Imports cheaper than exports= larger Budget and BoP deficit
5. Economic Growth v Reduction in Wealth Inequality – Growth increase Inequality
4.2.1.2
Measuring economic growth
GDP is the measure of economic growth
• Economic growth can be measured by the change in national output over time
• National output is all goods and services produced by a country & measured in 2 ways:
o volume – quantity of good and services produced
o value – value of goods and services produced
• National output= national expenditure=national income
• Economic growth is the speed of national output
o Positive growth = booms
o Negative growth = recession
o Economic depression = sustained economic downturn
• Some GDP growth may be due to inflation
o Nominal GDP = not adjusted for inflation Nominal GDP = Quantity x Price
o Real GDP = adjusted for inflation Real GDP= Nominal GDP x 100
▪ Calculations are on the right Price index
Real GDP per Capita = Real GDP x 100
• GDP per capita indicates standard of living in a country Population
GDP per Capita = Total GDP or GNI or GNP % Change in Real GDP = Ending Real GDP – Starting GDP x 100
Population Size Starting GDP
• Higher GDP per capita means higher standard of living
• Gross National Income= GDP + net income from abroad
• Gross National Product = Total output of the citizens of a country
