Macroeconomic Indicators (AQA A Level Economics)

An Introduction to Macroeconomic Indicators

• Each of the macroeconomic objectives has at least one metric that is used to measure progress towards that objective

  • These metrics are called macroeconomic indicators

  • Macroeconomic indicators provide a snapshot of the economic performance

• The data from the macroeconomic indicators helps policymakers, economists, investors and businesses make informed decisions

Diagram: Macroeconomic Indicators 

• Policymakers use the data from economic growth, inflation, unemployment, and the balance of payments to assist in formulating and evaluating progress towards their objectives

• The indicators provide a means of making historical and international comparisons

Measures of Economic Growth

• Economic growth is one of the main macroeconomic goals that the government aims to achieve

  • A steady increase in national output can help achieve other goals, such as lower levels of unemployment 

•  Three common indicators used to measure economic growth are

  • Nominal GDP
    The value of all goods and services produced in an economy in a one-year period

• Real GDP
  This is nominal GDP that is adjusted for inflation. E.g. If nominal GDP is £100bn and inflation is 10%, then real GDP is £90bn
   

• Real GDP per Capita
  The real GDP is divided by the total population of a country so as to give an average $ amount of real GDP/person. E.g. Switzerland ($93,657) has a much higher GDP/capita than Burundi ($238)

Measures of Inflation

• Inflation is a sustained increase in the general price level of an economy
  

• The UK uses two inflation indices to measure inflation and each one is calculated differently

  • The consumer price index (CPI)

  • The retail price index (RPI)
     

 A Comparison of the CPI & RPI

Measures of Unemployment

• A worker is considered unemployed if they are out of a job and actively looking for one

  • Unemployed people who are not actively looking for a job would not be considered to be unemployed 

• Unemployment is measured in many countries using two different approaches

  • The International Labour Organisation (ILO) Survey

  • The Claimant Count 

The Differences Between the ILO Labour Force Survey & the Claimant Count

Three indicators used to Analyse the Labour Market in an Economy

• The employment rate could be increasing even as the unemployment rate is increasing

  • This may be caused by increased immigration, which causes the working age population to increase

  • This may be caused as people move from being economically inactive to employed

• Unemployment rates do not capture the hidden unemployment that occurs in the long term

  • Workers look for a job but may eventually give up and become economically inactive

  • This actually improves the unemployment rate, as fewer people are actively seeking work

A Satisfactory Balance of Payments

• The Balance of Payment (BOP) measures the flow of money in and out of a country in a specified time period (usually a month, quarter, or year)
   

• The most important component of the BOP is the current account

  • It represents the flow of trade (exports - imports) in goods and services

  • It also includes net income payments (the difference between income flowing in and out of a country) 

Components of the UK Current Account For 2017

Explaining the account

• Goods are also referred to as visible exports or imports

• Services are also referred to as invisible exports or imports

• Net income consists of income transfers by citizens and corporations

  • Credits are received from UK citizens who are abroad and send remittances home

  • Debits are sent by foreigners working in the UK back to their countries

• Current transfers are typically payments at government level between countries, e.g. contributions to the World Bank

• The Current Account balance is often expressed as a % of GDP

  • This allows for easy international comparisons

The Current Account balance

• A trade deficit is when a country's imports exceed its exports during a given time period. 

• A trade surplus is when a country's exports exceed its imports during a given time period. Balance of trade = exports - imports.

• The UK government has a macroeconomic aim to get their Current Account balance as close to equilibrium as possible

  • The UK usually has a current account deficit in its balance of payments

• Export-led economic growth would help it become positive

• However, with increasing income and wealth in an economy, the value of imports rises

  • Consumers enjoy the variety of goods and services abroad

  • Rising imports push the balance towards a deficit