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%

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DP (p

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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