2.1.2 Macroeconomic Indicators

Specification Coverage: AQA unit 2.1.2 - Macroeconomic Indicators. Students should be able to understand the main macroeconomic indicators and how they are measured, including GDP, real GDP per capita, Consumer Prices Index (CPI), Retail Prices Index (RPI), measures of unemployment, productivity and balance of payments on current account.

Economic Growth Indicators

Nominal GDP: The total market value of all final goods and services produced within a country in a given period, measured at current prices.

Real GDP: The total market value of all final goods and services produced within a country in a given period, adjusted for inflation, measured at constant prices.

\[ \text{\% Change in Real GDP} = \text{\% Change in Nominal GDP} - \text{Inflation Rate} \]

Real GDP per capita: Real GDP divided by the population, providing a measure of the average economic output per person.

\[ \text{Real GDP per capita} = \frac{\text{Real GDP}}{\text{Population}} \]

Inflation Indicators

Consumer Prices Index (CPI): A measure of the average change in prices paid by consumers for a basket of goods and services over time. It is used to calculate the inflation rate.

Retail Prices Index (RPI): Similar to CPI, but includes housing costs such as mortgage interest payments and council tax. It is also used to calculate the inflation rate.

\[ \text{Inflation Rate} = \frac{\text{CPI in Current Year} - \text{CPI in Previous Year}}{\text{CPI in Previous Year}} \times 100 \]
\[ \text{CPI} = \frac{\text{Cost of Basket in Current Year}}{\text{Cost of Basket in Base Year}} \times 100 \]

Unemployment Indicators

Unemployment Rate: The percentage of the labour force that is unemployed and actively seeking employment.

\[ \text{Unemployment Rate} = \frac{\text{Number of Unemployed People}}{\text{Labour Force}} \times 100 \]

Employment Rate: The percentage of the working-age population that is employed.

\[ \text{Employment Rate} = \frac{\text{Number of Employed People}}{\text{Working-Age Population}} \times 100 \]

The Employment Rate and the Unemployment Rate do not add up to 100% of the working-age population, as there are people who are neither employed nor actively seeking employment - these are known as the economically inactive population. This group includes students, retirees, and those unable to work due to illness or disability.

Measures of Unemployment: Claimant Count and Labour Force Survey

Claimant Count: The number of people claiming unemployment benefits such as Job Seekers Allowance (JSA) which can be used as an indicator of unemployment levels.

The Claimant Count is harder to compare internationally, as it depends on each country's own benefit rules rather than a standardised definition of unemployment. It may also not capture all unemployed individuals, as some may not be eligible for benefits or choose not to claim them.

Labour Force Survey (LFS): A survey conducted by the government to measure unemployment. Respondents are classed as unemployed if they answer "yes" to the following questions:

  • Are you without a job?
  • Are you available to start work in the next two weeks?
  • Have you been actively seeking work in the last four weeks?

The LFS is considered a more accurate measure of unemployment than the Claimant Count, as it captures a wider range of unemployed individuals, including those who may not be eligible for benefits or choose not to claim them.

Worked Example: Unemployment and Employment Rates

An economy has a working-age population of 40 million, made up as follows:

Group People
In employment 26 million
Unemployed (available and seeking work) 2 million
Economically inactive 12 million
Labour force 26m + 2m = 28m
Unemployment rate \( \frac{2}{28} \times 100 = 7.1\% \)
Employment rate \( \frac{26}{40} \times 100 = 65\% \)

The two rates use different denominators. The unemployment rate is measured against the labour force of 28 million; the employment rate against the whole working-age population of 40 million. That is why 7.1% and 65% do not sum to 100% - the missing 12 million are economically inactive and appear in neither rate.

Balance of Payments Indicators

Balance of Payments: A record of all transactions between a country and the rest of the world over a specific period, including trade in goods and services, income flows, and financial transfers.

The most important component of the Balance of Payments is the Current Account.

Current Account: The part of the Balance of Payments that records trade in goods and services, income flows, and current transfers.

The Current Account is made up of four main components:

  • Trade in Goods: The difference between the value of exports and imports of physical goods.
  • Trade in Services: The difference between the value of exports and imports of services, such as tourism, financial services, and transportation.
  • Primary Income: Income earned by residents from abroad (e.g., dividends, interest) minus income paid to foreign residents.
  • Secondary Income: Transfers of money, such as foreign aid, remittances, and gifts, between residents and non-residents.

A current account deficit occurs when a country imports more goods, services, and income than it exports, while a current account surplus occurs when a country exports more than goods, services, and income than it imports.

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Eight original multiple-choice questions on real GDP, CPI and RPI, the measures of unemployment and the current account, written to AQA Paper 3 Section A style.

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