Pass that A Level - AQA AS Economics measurement of macroeconomic performance 2
MEASUREMENT OF MACROECONOMIC PERFORMANCE
1. To be able to define different measures of macroeconomic
2. To be able to apply the most appropriate measure in given
3. To be able to suggest the most appropriate macroeconomic actions to
implement policies (ANALYSIS)
Definition of 'Gross Domestic Product - GDP'
The monetary value of all the finished goods and services produced within a country's
borders in a specific time period, though GDP is usually calculated on an annual basis. It
includes all of private and public consumption, government outlays, investments and
exports less imports that occur within a defined territory.
GDP = C + G + I + NX
"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX =
Exports - Imports)
It does not include any activity which is not formally reported in
Eg Blackmarket activities
Sale of illegal substances
Activities being carried out at home by mothers/fathers
See extra handout. It can be considered outdated
Unemployment is defined as a situation where someone of working age is
not able to get a job but would like to be in full time employment
Demand Deficient Unemployment. – Lack of AD in economy (e.g.
Structural Unemployment – workers lack necessary skills or geographical
Real Wage Unemployment – wages above equilibrium
Frictional unemployment – workers in between jobs
Voluntary Unemployment. – workers prefer not to work
Demand Deficient Unemployment
Demand deficient unemployment occurs in a recession or period of very
low growth. If there is insufficient Aggregate Demand, firms will cut back
on output. If they cut back on output then they will employ less workers.
Firms will either cut back on recruitment or lay off workers. The deeper the
recession, the more demand deficient unemployment there will be. This is
often the biggest cause of unemployment, especially in a downturn.
This is unemployment due to inefficiencies in the labour market. It may occur due to a
mismatch of skills or geographical location. For example structural unemployment could
be due to:
Occupational immobility. There may be skilled jobs available, but many workers may not
have the relevant skills. Sometimes firms can struggle to recruit during periods of high
unemployment. This is due to the occupational immobility.
Geographical immobility. Jobs may be available in London, but, unemployed workers
may not be able to move there due to difficulties in getting housing e.t.c.
Technological change. If an economy goes through technological change some
industries will decline. This is likely to lead to structural unemployment. For example, new
technology (nuclear power) could make coal mines close down leaving many coal
Real Wage Unemployment
This occurs when wages are artificially kept above the equilibrium. For
example, powerful trades unions or minimum wages could lead to wages
above the equilibrium leading to excess supply of labour (this assumes
labour markets are competitive)
Keynesian analysis suggests a fall in AD can lead to real wage
unemployment as wages are sticky downwards and a fall in AD doesn’t
lead to wages clearing.
This occurs when workers are in between jobs e.g. school leavers take time
to find work. There is always likely to be some frictional unemployment in
an economy as people take time to find a job suited to their skills
The labour force includes everyone of working age who is either working or
looking for work. The Aggregate Supply of labour is every one who is able
and willing to supply their labour. Not everyone in the labour force will
actually be able to supply their labour, and this leads to the natural rate of