Macroeconomics

Four main objectives

• Price stability
• Minimising unemployment
• High and sustainable economic growth
• A stable balance of payments on current account

Conflicts of Macroeconomic objectives

Full employment vs. Low inflation

The employement is high demand for goods becomes higher causing firms to increase the price of their good sthis is demand pull inflation.

Economic growth vs. A balance of payments

When the economy grows people feel better off so are more likely to spend on imports causing a balance of payments defecit.

Real GDP

Real GDP is a macroeconomic measure of the value of economic output that has been adjusted for inflation.

Real GDP per capita

This is the average (mean) output of the economy per person measured in a base year prices. It is often used as a measure of standard of living in comparisons over time of one country.

CPI

Consumer price index (CPI) measures changes in the price level of market basket of consumer goods and services purchased by households

RPI

Retail price index (RPI) is a measure of inflation. It measures the change in the cost of a representative sample of retail goods and services.

Measuring the balance of payments

To review, the balance of payments, or BOP, is a country's record of all transactions between its residents and the residents of all other foreign nations.

Measuring Unemployment

The LFS is a sample survey of people living in private households.

Index numbers are values expressed as a percentage of a single base figure. For example, if annual production of a particular chemical rose by 35%, output in the second year was 135%.

When all commodities are not of equal importance, we assign weight to each commodity relative to its importance and the index number computed from these weights is called a weighted index number.