Economic Policy Objectives and Macroeconomic Performance
EdExcel AS Economics 2.1.1
• Macroeconomics studies the behaviour of an economy as a whole – in aggregate
National economy
• Macroeconomics studies connections between developed and developing countries in the global economy
External factors
• Macroeconomics includes looking at the effects of policies such as a change in taxation or higher/lower interest rates
Macro policies
• Macroeconomics involves studying inflation, growth, progress in human development, trade and globalisation
Key topics
What is Macroeconomics?
What are the key objectives of macroeconomic policy?
Price Stability (CPI Inflation of 2%)
Growth of Real GDP (National Output)
Falling Unemployment / Raising Employment
Higher Average Living Standards (national income per capita)
Stable Balance of Payments on the Current
Account
An Equitable Distribution of Income and Wealth
Additional objectives of macroeconomic policy
Balancing the budget and reducing the national debt
Improving economic well-being
Better regional balance in the UK economy
Improved access to public services
Improved competitiveness
Environmental sustainability
Actual and Forecast Economic Indicators for the UK
*Data for 2015 and 2016 are forecasts published for the July 2015 Budget
Economic Indicator 2014 2015* 2016*Gross domestic product (GDP) % change 3.0 2.4 2.3GDP levels (2014=100) 100.0 102.4 104.8Output gap (per cent of potential GDP) -1.0 -0.6 -0.4Expenditure components of GDP Household consumption (% change) 2.5 3.0 2.5General government consumption (% change) 1.6 1.2 0.5Business investment (% change) 8.0 6.0 7.2General government investment (% change) 3.4 2.4 -0.1Net trade: (exports - imports) (per cent of GDP) -0.6 -0.5 -0.4Inflation Consumer price index (annual % change) 1.5 0.1 1.1The Labour Market Employment (millions) 30.7 31.2 31.5Average earnings (annual % change) 2.6 2.2 3.6Labour Force Survey unemployment (% rate) 6.2 5.4 5.1Claimant count unemployment (millions) 1.04 0.78 0.73
Actual & Forecast Growth for the UK Economy
Source: Office for Budgetary Responsibility, July 2015
Economic growth is measured by the annual rate of change of real national output (GDP). The actual and forecast rate of growth for the UK is shown in the chart below. In 2009 the UK economy suffered a deep recession.
Recession: A fall in real national output lasting at least 6 months
Forecast: Chart shows a probability fan chart – shows low risk of recession
Shares of World Economic Output in 2015
China USA India Japan Germany Russia Brazil United Kingdom
France0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%16.86%
16.1%
7.11%
4.3%3.39% 3.07% 2.9%
2.35% 2.34%
Shar
e in
glo
bal G
DP (p
er c
ent)
Percentage share of the main industrialized and emerging countries in global gross domestic product (adjusted for purchasing power) in 2015
Note: Adjusted for purchasing power means that the US $ value of each country’s GDP has been altered to take account of differences in the cost of living in different nations.
Using this measure, China in 2015 is now the biggest economy in the world although her per capita national income remains a low fraction of advanced high-income countries.
Economic Policy Objectives and Macroeconomic Performance
EdExcel AS Economics 2.1.1