Unit 2 ECON2 - Economics: The National Economy (3.2)
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Summary First Year Macroeconomics
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Unit 2 ECON2 - Economics: The National Economy (3.2)
Institution
AQA
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A-Level Economics
AQA-Level Economics consists of four modules: year 1 (3.1 & 3.2) and year 2 (4.1 & 4.2).
3.2 The National Economy in a Global Context corresponds to first year macroeconomics
Summary A-Level Economics, ISBN: 9781782943570 Unit 3 - Business behaviour and the labour market
Summary A-Level Economics, ISBN: 9781782943570 Unit 3 - Business behaviour and the labour market
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Economics
Unit 2 ECON2 - Economics: The National Economy (3.2)
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, 3.2.1 The measurement of
macroeconomic performance
Macroeconomics
, 3.2.1.1 The objectives of government economic policy
Balance of payments
What are the main objectives of government Inflation
Measures all the currency flows into and out of and economy in a particular
macroeconomic policy? Inflation is the general rise in average prices (rise in
period.
price level) across the economy. It is measured in two
Current account of balance of payments - Measures all the currency flows
ways:
- Economic growth into and out of a country over a period of time in payments for imports and
- Price stability (CPI Inflation of 2%) exports.
Consumer prices index (CPI) – Official measure used to
- Minimizing unemployment (falling Imports – Goods or services produced in other countries and sold to
calculate the rate of consumer price inflation in the UK.
unemployment/raising employment) economic agents in this country.
This calculates the average price increase in a basket of
- A stable balance of payments on current Exports – Domestically produced goods or services sold to economic agents in
700 different consumer goods and services.
account other countries.
Others Include: Balance of trade – The difference between the money value of a country’s
Retail Price Index (RPI) – Also uses a basket of goods
reducing national debt, Environmental imports and its exports.
but also includes housing costs , such as the effect of
sustainability, Productivity growth It is the largest component of a country's balance of payments on the current
mortgage rates or council tax.
account (there are other financial parts of this too.
Unemployment Main Policy Conflicts The importance of these objectives change over time and will v
The unemployed are those people able, available and willing to work at Policy Conflicts – When two policy objectives depending on their stage of economic development.
the going wage but cannot find a job despite an active search for work. cannot be achieved at the same time: the
It is measured by: better the performance in achieving one
objective, the worse the performance in
Claimant count – measuring unemployment according to those people achieving the other.
who are claiming unemployment related benefits e.g. Jobseekers
Allowance • Between achieving full employment and
Labour force survey – A sample survey of UK households – seeking controlling inflation.
information about respondents’ employment status. • Between increasing the rate of economic
growth and achieving a more equal
Real Gross Domestic Product (GDP) - A measure of all the distribution of income and wealth
• Between higher living standards now and
goods and services produced in an economy, adjusted for higher living standards in the future
price change or inflation.
Nominal GDP – GDP measured at the current market
prices, without removing the effects of inflation. *** Revision questions
1. What are the main objectives of government
macroeconomic policy?
Real GDP = Nominal GDP – Rate of 2. How do you calculate Real GDP?
3. What three main policy conflicts?
Inflation
, 3.2.1.2 Macroeconomic indicators Inflation
Inflation is a persistent increase in t
Economic Growth Unemployment over a given period of time.
• Economic growth is an increase in real GDP. That is an increase in the Unemployment is defined as someone who is Inflation figures are normally given o
real value of goods and services produced in an economy in a given
actively seeking a job but is currently without a job.
period of time. The most common measures for inf
• It is usually calculated on an annual or quarterly basis and is given as a (Consumer Price Index) and RPI (Ret
growth rate. Two main measures: They are calculated by measuring th
• If real GDP is growing, this means the value of goods and services being • Claimant Count (CC): made up of people who are of a basket of goods and services.
produced is rising. So it should mean, ceteris paribus (everything else receiving Job Seekers' Allowance.
equal), that incomes and standards of living are rising. One reason inflation is an indicator o
• International Labour Organisation (ILO) measure,
economy is because high and unexp
Goods and services need to be distributed among the people, so population which defines unemployment as someone who has mean goods and services are becom
size matters. been actively seeking work for the past four weeks the purchasing power of income fall
A better measure of economic strength is real GDP per capita (per capita but ready and able to start in the next two weeks.
means divided by the population).
The CC is calculated monthly, whilst the ILO measure International competitiveness/Trad
E.g. In 2019, China’s real GDP is $12.2 trillion, but its GDP per capita is only The international competitiveness of
$9,000 because it has so many people. Whereas Qatar’s real GDP is smaller is calculated quarterly.
good indicator of the performance o
($167 billion) but its GDP per capita is higher ($63,500). So the “average” indicates how likely consumers from
person has a higher income in Qatar than in China. The ILO is an internationally agreed and comparable buy the country’s goods.
measure. The ILO is based on a survey.
Competitiveness and Productivity This can be measured by looking at
Productivity is defined as the output per unit of input per hour. the value of imports (the trade bala
In the UK, the CC can underestimate unemployment.
the current account of the balance o
Labour productivity is the output per worker per hour, measured in £, $, etc. Some people are eligible but do not claim because of
The higher the productivity is, the more efficient it is to make goods and social stigma, not knowing they can claim, and not
services. This means it is cheaper, per unit, to make them. needing to because of savings.
This then allows goods and services to be sold at a cheaper price to
international markets.
Unemployment is a good indicator of the performance
of an economy because if people are unemployed,
Revision questions their income is lower than it would be if they had a
1. Define economic growth and how is it calculated? job. So their standard of living would be lower. Ac
2. Define productivity and how is it measured? ind
3. Define unemployment and how is it measured?
But note that having a job could still mean a low level (Tr
4. Define inflation and how is it measured? Inf
5. What does the international competitiveness of a country indicate
of income e.g. the work could be minimum wage,
part-time or temporary work. Em
and how is it measured? Re
6. How often is the ILO and CC calculated? inc
7. What is the problem with CC? Workers who would like, but can't get, more hours are
referred to as 'underemployed’.
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