Macroeconomic Objectives | 4.2.1 | AQA A-Level Economics Notes

4.2.1.1 The Objectives of Government Economic Policy

• The main objectives of government macroeconomic policy are economic growth (sustainable growth of around 2.5% annual growth), price stability (2% CPI rate), minimising unemployment (below 4.5%) and a stable balance of payments on current account (equilibrium).
• There is a possibility of conflict arising, at least in the short run, when attempting to achieve these objectives.
• Governments may also have other objectives of macroeconomic policy, such as balancing the budget and achieving an equitable distribution of income.
• The importance attached to the different objectives change over time.

4.2.1.2 Macroeconomic Indicators

• Real GDP: the quantity of goods and services produced in an economy in a year, adjusted for inflation.
• Real GDP per capita: a measure of real GDP, divided by the population.
• CPI: the official measure used to calculate the rate of consumer price inflation, using price changes of a ‘basket’ of 700 different consumer goods of the ‘average family’. Each good is weighted differently.
• RPI: older alternative to CPI, including housing costs, giving higher values. Still currently used for TV/ vehicle costs, and pensions.
• Claimant count: measures unemployment as a count of the number of unemployed people seeking benefits.
• Labour Force Survey: a quarterly sample survey of households in the UK, seeking information on respondents’ labour market status over a four week period.
• Labour productivity: output per worker per unit time.
• Balance of Payments on the Current Account: a record of all currency flows into and out of the country in a particular time period.

4.2.1.3 Uses of Index Numbers

• Index numbers are used in indexes such as CPI, and they enable comparisons to be made over time. They have a base number of 100; hence percentage changes can be easily seen, relative to 100.

4.2.1.4 Uses of National Income Data

• Real GDP: the quantity of goods and services produced in a economy in a year, it is the national output adjusted for inflation.
• Real GDP per capita: real GDP per person.
• GNI: total income generated by an economy’s factors of production, regardless of where they are located. It is the sum of the value added by producers who reside in a nation plus product taxes, minus subsidies, plus receipts of primary income from abroad (minus income earned by non-residents in the domestic economy).
• GDP values can lead to problems such as double counting, emission of factor income from abroad as well as informal activity.
• Also, economic growth measures in general are not useful for describing the state of equality of negative externalities, which should also be considered.