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​6.1 ECONOMIC PERFORMANCE

​This video is relevant for this section despite it saying that it is for AQA. ​​
There are a wide variety of macroeconomic variables in the economy and the majority of these will be explored during this section. The government tries to influence the economy through macroeconomic policies and they have four main aims.
  1. Economic growth. A government will try to obtain sustainable economic growth in the long term. They will try to avoid excessive short-term growth that lends itself to booms and busts and instead aim for a constant positive growth rate.
  2. Unemployment. The government will try to reduce the level of unemployment in the economy. Unemployed individuals are a waste of human resources and they are a drain on public resources if they are claiming benefits.
  3. Inflation. Inflation is the rate at which the general level of prices for goods and services rises. Inflation erodes the purchasing power of economic agents. The government (or in the case of many countries now, the central bank), try to control inflation and keep it at a constant rate, which allows economic agents to form expectations. The Bank of England inflation target is 2% per year.
  4. Stable balance of payment on the current account. The balance of payment looks at an economy’s transactions with the rest of the world, over a specific time period. The government will aim for a sustainable level for the balance of payment.
All of these will be explored further in section 3. However, the government will have many other objectives which they wish to achieve from their macroeconomic policy, such as an equitable distribution of income between residents, a balance budget (no deficit or surplus) and many more. Over time, the government prioritises different objectives depending on what the concerns of the population are at that time. For example, during the late 70’s and early 80’s inflation was perceived as public enemy number one resulting in the government taking action to try to get inflation under control and at a sustainable level. Whereas now, a balanced budget seems to be what the government is now aiming for, through all their austerity measures.

​Macroeconomic policies are chosen depending on the perceived problems in the economy. Some policies may help solve one problem but cause a new problem. These will be explored later but a government may choose expansionary fiscal policies if they have a high level of unemployment. This would reduce the level of unemployment but may increase the rate of inflation. The government must decide which objectives they would prefer to achieve because of the conflict between objectives.

Macroeconomic Indicators
A macroeconomic indicator is used to check the performance of the economy. They allow us to see how well the economy is performing compared with our objectives. For example, to see the level of economic growth we could look at real GDP or real GDP per capita. Inflation can be looked at through the RPI (Retail Price Index) or the CPI (Consumer Price Index). Unemployment can be found by looking at the claimant count (the number of people claiming job seeker allowance) or by the number of inactive individuals in the economy according to the Office for National Statistics Labour Force survey. The balance of payments will be measured by looking at the figures for the capital and current account.

We also have a variety of other macroeconomic indicators such as:
  • Productivity both per worker and per hour
  • Consumer confidence survey
  • Level of private debt
  • House prices
  • The value of the stock market
  • The money supply (the level of M2)
The government and central banks will be monitoring all macroeconomic indicators to judge the health of the economy and then decide on their economic policy depending on what concerns they have with regards to the future of the economy.
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