OxfordAQA International A Level Economics 3.2.1 The Measurement of Macroeconomic Performance Exam Questions

About OxfordAQA International A Level Economics 3.2.1 The Measurement of Macroeconomic Performance

The measurement of macroeconomic performance opens Unit 2, The national economy in a global environment, on the OxfordAQA International AS Economics course. You learn the main objectives of government policy, including economic growth, low unemployment, low and stable inflation and a satisfactory current account balance, and how each is measured. This means understanding real and nominal GDP, index numbers, consumer price indices, unemployment measures and the current account. These indicators are the data in nearly every Unit 2 data response question. Examiners often ask you to calculate percentage changes or real values, interpret index numbers correctly and explain what the data show about an economy's performance.

What you need to know

• 3.2.1.1 Policy objectives Typical objectives are strong and sustainable economic growth, low unemployment, low and stable inflation, a satisfactory current account balance, a balanced government budget and an acceptable distribution of income.
• GDP and growth Gross domestic product measures the value of output in an economy. Real GDP is adjusted for inflation; nominal GDP is at current prices. Real GDP per head is used to compare living standards.
• Index numbers An index sets a base year equal to 100. A rise from 100 to 104 is a 4% increase; a rise from 120 to 126 is a 5% increase, not a 6% increase.
• Inflation Inflation is a sustained rise in the general price level, measured by a consumer price index built from a weighted basket of goods. A fall in the inflation rate means prices are rising more slowly, not falling.
• Unemployment Unemployed people are willing and able to work but cannot find a job. It can be measured by a labour force survey or a claimant count; the unemployment rate is the percentage of the labour force.
• Current account The current account records trade in goods and services, primary income and secondary income. A deficit means more is spent on imports and outflows than is earned from exports and inflows.

Common mistakes in 3.2.1 The Measurement of Macroeconomic Performance

• Saying prices fell when inflation fell from 5% to 3%. Prices still rose, just more slowly.
• Reading a change in index points as a percentage change. Divide the change by the starting value and multiply by 100.
• Using nominal GDP growth as a measure of real economic growth. Adjust for inflation first.
• Confusing the current account with the government budget. A current account deficit concerns trade and income flows with other countries.
• Treating everyone without a job as unemployed. Students, retired people and others not seeking work are economically inactive.

Try three 3.2.1 The Measurement of Macroeconomic Performance exam-style questions