The measurement of macroeconomic performance

1. The measurement of macroeconomic performance By Oliver, Jack and Max

2. The meaning of macroeconomic performance Macroeconomics considers the economy as a whole. The total quantities of goods and services produced by all firms in the economy. We are now looking at the total demand of a given country such as the UK. We refer to total demand as aggregate demand and total supply as aggregate supply. Aggregate Demand – total demand in the economy made up of consumption, investment, government expenditure and net exports. C + I + G + (X-M) Aggregate Supply – the total value of goods and services supplied in the economy.

3. Indicators of Performance • Jobs – if more people have jobs, the economy is performing better. • Prices – if prices are higher, better chance of price stability. • Trade – is the country trading well with other countries? • Efficiency – higher productivity = better performance • The Environment – many economists now focus on whether an expanding economy is sustainable in terms of its environmental impact. GDP (Gross Domestic Product) is the total value of good and services produced in the economy.

4. Employment and Unemployment Unemployment has a huge opportunity cost in that it represents a waste of scarce resources as output lost can never be recovered. It has negative effects on the unemployed themselves, their families, the locality and the wider economy as a whole: • Unemployment has adverse effects on the individuals who are likely to suffer a fall in their confidence levels as well as their income, which is magnified by the length of time for which they are unemployed. • The situation for the family of those unemployed is also bad, because as their standards of living is likely to fall and purchases that were once taken for granted are now affordable. • Areas suffering from high levels of unemployment are likely to be run down with shops shutting down and crime rates increasing. These adverse effects create negative externalities that impose a burden on society.

5. The 10 largest economies of the World - 2012 $1 US Dollar £0.62 Sterling

6. The Economic Cycle

7. GDP – Gross Domestic Product Nominal GDP – GDP/income/output figures not adjusted for inflation. Real GDP – GDP/income/output figures adjusted for inflation. The value of GDP is usually stated in monetary terms though sometimes you may read that it has increased by say 2 percent. The UK’s GDP is about £1 billion, this is a nominal figure. If this figure were to be compared to a previous year that had a real GDP figure, it would have to be adjusted so that inflation was taken into account.

8. The UK’s past economic performance

9. The Retail Price Index This is the main domestic measure of inflation in the UK. It measures the change from month to month in the prices of goods and services consumed by most households. This is a weighted price index which is used to measure the rate of inflation, usually over a year. Weighting – where a commodity is given a price index proportional to its importance in the general pattern of consumer spending.

10. Macroeconomic Performance By Charles, Chris and Luis

11. What is it? • Macroeconomic performance is defined as an assessment of how well a country is doing in reaching its objectives of government policy • Macroeconomic Polices can Include: -Jobs (How high is unemployment? Is the economy creating jobs?) -Prices (Are prices stable? Is there inflation or deflation?) -Trade (How well is the economy trading with other nations?) -Growth (Sustained Growth? Is GDP rising or falling?) -Efficiency (Productivity of firms? Can more goods be produced for lower cost?) -Public services (Have benefits of growth been used for provision of govt services?) -The Environment (Effects of economy on nature? Is growth sustainable?)

12. Sectors of the Macro-Economy • Households: Receive income from their jobs and from their investments and then buy the output of firms. • Firms: Businesses hire land, labour and capital inputs to produce goods and services for which they pay wages and rent etc. Firms receive payment from consumers and profitable businesses and may choose to invest a percentage in new producer goods. • Government: Collect direct and indirect taxes to fund spending on public services like education, healthcare and defence. • International sector: The UK buys imports and overseas businesses and consumers buy UK products- exports. Millions of jobs depend on the UK remaining competitive in overseas markets.

13. The UK Economy • The UK has the second largest economy in the EU. • The UK is ranked in the in the top 15 nations in terms of per capita income. • Over a quarter of the UK’s GDP comes from exports however the UK has more imports than exports and so runs an annual trade deficit

14. How the Olympics Effected the UK Economy • The Office for National Statistics said that Olympic ticket sales had added 0.2 percentage points to the figures. • The economy had been in recession for the previous nine months and has still not recovered the levels of output seen before the financial crisis in 2008. • The GDP figures second quarter had an extra public holiday as part of the Diamond Jubilee celebrations in June, as well as unusually bad weather, which reduced growth.

15. Key Terms • Economic Cycle- Variations in the annual rate of growth of an economy over time • Forecast- A prediction made about the likely future performance of an economy • GDP- Gross Domestic Product, the monetary value of goods and services produced within the geographical boundaries of a nation • Recession- A period of at least 6 months when and economy suffers a fall in output • Target- An objective of government policy e.g lower inflation • Sustainable Growth- The rate of growth “which meets the needs of the present without compromising the ability of future generations to meet their own needs”

16. The Macro economic PERFORMANCE By Sasha White, Paul Fellows, Ardi Etemadi

17. Introduction Macro economics is studying the economy as a whole, and how decisions made by one economy can effect the relationships and interconnections between one country and another. • Topics: inflation, economic growth, changes in employment, trade performance, success of govt economic policies.

18. Key terms needed... • GDP – total value of goods and services produced within one economy • Recession – a period of at least 2/4 of the year when a economy suffers a fall in output & loss made. • Economic growth - % change in real GDP • Inflation – % change increase in prices annually • Sustainable growth – the rate of growth of an economy without reducing future welfare of consumers. ‘real GDP’ takes into account price changes within the UK

19. The UK economy • Second largest economy in the European union • Second largest exporter of services in the world • Over a quarter of GDP comes from exports • Imports>exports = annual trade deficit Measure of a negative balance of trade showing an outflow of domestic currency to foreign markets

20. Main sectors of macroeconomicsKnown as ‘economic agents’ • Households – Income from jobs (offering services) .Use money to buy output. • Firms – use the factors of production to produce goods and services • Government – collect taxes = (T) to use for spending on improving the economies performance, and publics social welfare. • International sector – UK buys overseas goods and services = imports = (M) Consumers overseas buy UK’s goods and services = Exports = (X)

21. How do we measure performance? • How well a country is meeting its objectives that are set by the government • Policies set by govt – aims to improve the ‘real’ living standards of the public This takes into account rising prices

22. Its also measuring... Jobs • Unemployment • Occupational mobility of jobs • Does supply labour = demand for labour? Prices • Price stability • Avoiding deflation Trade • What is the balance between trade of our economy with others? Growth • Is there growth short term? • Sustainability of future growth • Effects of future growth on environment Efficiency • Efficiency of factors of production • Levels of productivity within the UK economy • Is the UK’s PPF shifting outwards? Public services • Has growth benefitted social welfare • Improved the provision of public services? Environment • Effects of activity on natural environment • Is this growth sustainable for our environment? • How will it continue to impact it? Inflation between 1-3% per year

23. Inflation causes • Demand pull : where demand rises faster than the supply of a product causing prices to rise. • Cost push: where rises in cost of production causes a rise in price of the products as it is harder to supply them for the same profit as before.

24. Jobs & unemployment causes • Frictional Unemployment– where people become unemployed between jobs • Demand Deficient Unemployment– labour= derived demand, so the reduction is demand causes less labour to be needed • Technological Unemployment– where people lose work by being replaced with technology, meaning they are no longer needed. • Seasonal Unemployment– caused by the seasonal demand fluctuations for certain jobs • Real Wage or Classical Unemployment – caused by wage rates being held above market clearing levels, causing excess supply of labour • Structural Unemployment– when the workers don't have the right skills needed to get a job, and specialise in areas where they are no longer needed due to changes in industries.

25. Is there a link?

26. Current govt objectives/policies • Stable low inflation with prices rising at a rate within the target range of 1.5% - 2.5% per year • Sustainable growth –to make sure that we are looking at the long term solutions best for the economy not ‘quick fixes’. • Higher levels of investment into Human capital to increase productivity - to improve international competitiveness • High employment - the government wants to achieve full-employment • Rising living standards and a fall in relative poverty = EQUITY • Sound government finances (including control over government borrowing and the national debt)

27. Effects of interconnections • One countries economic events/policies & shocks will effect another economy as we are interconnected. • E.g.: recession in UK effected global trade & prices

28. Economic stability When prices remain low in fluctuations, and jobs are constant. This is often the main aim of all the policies studied in macroeconomics. • Reduces business uncertainty • Improves confidence in investment • Source of economic growth • Increase living standards

29. Economic cycle The national output is constant with little fluctuations in output annually, this tracks the rate of growth in GDP. Recovery: upturn in a economic cycle when GDP recovers from a low point. Potential growth: the total capacity of the economy & what the economy could produce if it used all its resources efficiently.

30. The Measurement of Macroeconomic Performance Colin Dean, Alex Williamson + Jordan Buckle

31. Meaning Macroeconomics talks about how well the country is doing in relation with its objectives, in increasing the economic welfare. Although it isn’t just about the living standards of the country, we also have to take into consideration the growth of the GDP in relation to the jobs available, price stability, how trade performs against other countries, growth, efficiency, public services and the enviornment

32. 4 Ways To Assess Performance • Economic growth - Is capacity to produce goods growing over time? Within our economy has the amount of goods produced or the ability to produce more goods increased, this is based on the firms (our economy’s) performance. • Full employment – Is the economy efficient? Does the firms within the economy produce as much as they can with their resources? Are they producing on the ppf curve? • Are the prices stable? Does the prices within the economy fluctuate greatly or is their stability within the markets? • Living within our means? • The policy of the government is to ensure suitable outcomes of each of the four areas. • Is the UK economy faster/greater than other countries? Compare our gdp to those of other countries to see the more dominant countries.

33. Employment & Unemployment • Employment is when labour is actively engaged in productive activity. Unemployment is the opposite. • Employment rates indicate how the economy is performing. • Low unemployment indicates good national economic performance. • Immigrants reduce supply constraints of labour and ‘tightness’ of labour markets as firms can obtain labour easily.

34. Negative Impacts of Unemployment. • Fall in confidence as well as income, this is worsened as time goes by. • Like to be depressed and turn to alcoholism and may lead to domestic violence. • The standard of living is poor. • Often live in run down areas. • Tax may increase for the unemployed.

35. Unemployment causes a negative output gap. This also represents a huge opportunity cost. This is shown through a waste of scarce resources as output lost can never be recovered.

36. Inflation • Inflation is the persistant increase in the level of prices overtime. For example, in 1974, Jeans could have been £3.50 and now the same quality of jeans cost £30. • Inflation pressure is when the positive output gap is present – Actual Growth > Trend Growth. • Rapid inflation could have negative impacts on consumers, workers as firms react to it with increased pricing.

37. International Competitiveness • If factories are inefficient, firms will sell at higher prices and will not sell abroad as economies of other countries will be more efficient and sell at lower prices. • In order for firms to make income, they must sell their goods to other countries as exports. If their prices are high then they will not sell and won’t earn any money.

38. Indicators of Macroeconomic Performance • Economic indicators are economic statistics that provide information about the expansions and contractions of business cycles. • They help indicate the likely future directions of the economy.

39. GDP (Gross Domestic Product) • Value of GDP is stated in monetary terms. UK’s GDP is around £1,300bn . This is a nomial figure (GDP/Income/Output figures not adjusted for inflation). • If next year, GDP has increased by £200m, we don’t know if this shows real output or whether real output is only £50m and price increases is the £150m of the £200m. (Real output – output figures adjusted for inflation.

40. GDP continued... • May also see figure GNP (Gross National Product). This includes income that UK residents may receive from abroad minus the amount that is paid out of our economy of our economy to people overseas. • GDP is divided by the population to obtain GDP per head or GDP per capita. (GDP per capita – GDP divided by population – a measure of living standards.)

41. Macro-Economic Performance

42. Macroeconomics considers the performance of the economy as a whole. Many macroeconomic issues appear in the press and on the evening news on a daily basis. When we study macroeconomics we are looking at topics such as economic growth; inflation; changes in employment and unemployment, our trade performance with other countries (i.e. the balance of payments) the relative success or failure of government economic policies and the decisions made by the Bank of England.  • Economic Growth - trends in national output and living standards Unemployment - the causes and consequences of unemployment and the reasons for the changing structure of the work force Inflation - the economics of price inflation - who loses and who gains and what can we do about inflation? International trade - does the UK pay its way in trading with other countries?  Interest rates - should interest rates rise or fall? How do changes in interest rates affect consumers and businesses in the economy

43. The measurement of macroeconomic performance • National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time. • Measuring the level and rate of growth of national income (Y) is important for seeing: • The rate of economic growth • Changes to average living standards • Changes to the distribution of income between groups within the populationThere is a graph that shows the macro-economic performance:

45. The economic cycle • There are two type of economic cycle ; Boom and Recession.

46. Boom cycle • A boom occurs when real national output is rising at a rate faster than the trend rate of growth. Some of the characteristics of a boom include: • A fast growth of consumption helped by rising real incomes, strong confidence and a surge in house prices and other forms of personal wealth • A pick up in the demand for capital goods as businesses invest in extra capacity to meet rising demand and to make higher profits • More jobs and falling unemployment and higher real wages for people in work • High demand for imports which may cause the economy to run a larger trade deficit because it cannot supply all of the goods and services that consumers are buying • Government tax revenues will be rising as people earn and spend more and companies are making larger profits – this gives the government money to increase spending in priority areas such as education, the environment, health and transport • An increase in inflationary pressures if the economy overheats and has a positive output gap.

47. Recession • There are many symptoms of a recession – here is a selection of key indicators: • A fall in purchases of components and raw materials from supply-chain businesses • Rising unemployment and fewer job vacancies • A rise in the number of business failures including high profile names such as Woolworths • A decline in consumer and business confidence • A contraction in consumer spending & a rise in the percentage of income saved • A drop in the value of exports and imports of goods and services • Deep price discounts offered by businesses in a bid to sell excess stocks • Heavy de-stocking as businesses look to cut unsold stocks when demand is weak • Government tax revenues are falling and welfare spending is rising • The budget (fiscal) deficit is rising quickly

48. Inflation • What is inflation? • Inflation is a sustained increase in the cost of living or the average / general price level leading to a fall in the purchasing power of money. • The opposite of inflation is deflation which is a decrease in the cost of living or average price level.

49. Unemployment and Employment Both employment and unemployment are effected by the economic cycle and the levels of employment are an important indicator of how an economy performs as it shows whether or not the economy is capable of producing jobs for its labour force. • Unemployment has adverse effects on the individuals who are likely to suffer a fall in their confidence levels as well as their income, which is magnified by the length of time for which they are employed. Studies have shown that the unemployed are more likely to suffer from depression, alcoholism, domestic violence and family breakdowns then those with jobs. The economic consequence of this may be increased by government expenditure on social services with its attendant opportunity cost. • The situation for the family for those unemployed is also pretty dire, as their standard of living is likely to fall and purchases that will once taken for granted are now unaffordable. • Areas suffering from high levels of unemployment are likely to be run down with shops shutting down and crime rates rising. These adverse effects create negative externalities that impose a burden on society. • Government income from tax will be falling while benefit expenditure will be increasing and tax on the employed may need to rise to cover benefits to the unemployed.