Econ1102 - Notes for Finals
CHAPTER 3: MEASURING MACROECONOMIC PERFORMANCE: OUTPUT AND PRICES
CRITERIA FOR EVALUATING MACROECONOMIC PERFORMANCE
1. Rising living standards – economic growth Tendency for the level of output (quantity and quality of goods and services) to increase over time. 2. Stable Business Cycle – minimising the volatility in fluctuations of real output, around its trend or potential output. 3. Relatively Stable Price Level – low (positive) rates of inflation. Inflation and deflation is the tendency for price levels to change in the economy. Inflation is when prices rise while deflation is a general fall in prices. 4. Sustainable levels of Public and National Debt Public debt is the borrowing by public sector from the private sector and is influenced by budget deficits/surpluses. National debt is borrowing by domestic residents from foreign countries. This is influenced by the economy’s current account deficit/surpluses. 5. Balance between Current and Future Consumption What is the optimal level of saving that achieves the best balance between current and future needs? - Individual saving influences both the business cycle and the ability for the economy to grow in the long run. Savings also plays a huge role in nation and public debt. 6. Full Employment Provision of employment for all individuals seeking work
MEASURING NATIONAL OR AGGREGATE OUTPUT
GDP is used into two dimension (long-run growth and business cycle) o Business cycle shows the fluctuation of the economy (sometimes sluggish and growing relatively strong) o Long-run growth shows the steady growth of the economy - First indicator of good macroeconomic performance, rising living standards and low fluctuations in the shortrun business cycle is the nation’s GDP. - Definition: the market value of final goods and services produced in a country during a given period. DECONSTRUCTING DEFINITION “During a given period” - Every quarter - Flow variable – measured over a period time o In short run: GDP fluctuates,
CRITERIA FOR EVALUATING MACROECONOMIC PERFORMANCE
1. Rising living standards – economic growth Tendency for the level of output (quantity and quality of goods and services) to increase over time. 2. Stable Business Cycle – minimising the volatility in fluctuations of real output, around its trend or potential output. 3. Relatively Stable Price Level – low (positive) rates of inflation. Inflation and deflation is the tendency for price levels to change in the economy. Inflation is when prices rise while deflation is a general fall in prices. 4. Sustainable levels of Public and National Debt Public debt is the borrowing by public sector from the private sector and is influenced by budget deficits/surpluses. National debt is borrowing by domestic residents from foreign countries. This is influenced by the economy’s current account deficit/surpluses. 5. Balance between Current and Future Consumption What is the optimal level of saving that achieves the best balance between current and future needs? - Individual saving influences both the business cycle and the ability for the economy to grow in the long run. Savings also plays a huge role in nation and public debt. 6. Full Employment Provision of employment for all individuals seeking work
MEASURING NATIONAL OR AGGREGATE OUTPUT
GDP is used into two dimension (long-run growth and business cycle) o Business cycle shows the fluctuation of the economy (sometimes sluggish and growing relatively strong) o Long-run growth shows the steady growth of the economy - First indicator of good macroeconomic performance, rising living standards and low fluctuations in the shortrun business cycle is the nation’s GDP. - Definition: the market value of final goods and services produced in a country during a given period. DECONSTRUCTING DEFINITION “During a given period” - Every quarter - Flow variable – measured over a period time o In short run: GDP fluctuates,