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Summary MACRO NOTES - GDP
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extensive notes on GDP
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GDP in policy decision-making:The percentage change in the monthly GDP of the UK is an estimation based on the
information collected from income and expenditure. GDP is measured quarterly which
provides the most accurate calculation of GDP. For example, the UK GDP was still 8.7%
lower than the quarter before the pandemic even began. The estimate of quarterly figures for
GDP is released over 6 weeks after that period.
Limitations of the output method:
➔ It isn’t always accurate
➔ Data is based on incomplete information
➔ Figures can be significantly different
Unemployment:
Unemployment is a macroeconomic objective using a mix of demand and supply-side
policies managed by governments. Change in GDP does affect unemployment. The demand
for labour is derived from the demand for goods and services.
Rising GDP means there is more spending in the economy. Usually, an economy’s
productive potential increases by an average of 1-2% annually. Advances and improvements
in technology for example can increase the output level of the current workforce.
Impacts of furlough
2020 saw a fall in GDP associated with the increase in unemployment that year during the
pandemic. It rose from 4% to 5.1 later that year. GDP fell by 20% that year. Closed
businesses lost sales during this time and spending significantly slowed down. To aid the
payment of workers unable to work the furlough scheme was introduced paying 80% of
wages to people eligible.
Control of inflation:
GD also helps the MPC make decisions on what the interest rates should be to keep inflation
on target. If demand grows beyond the level of potential output then prices will rise. A
negative output gap means that actual GDP is lower than the economy’s productive capacity
suggesting minimal inflationary pressure.
Post-pandemic
● Furloughed workers are no longer considered to be part of the labour force
● Increase in people working from home- where people are less productive than in their
usual workplace
● Lower than average business investment due to uncertain events
Budget balance:
GDP is very useful to estimate how much money is going to be made from taxation.
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