University:
London School of Economics and Political Science
Course:
L400 | International Social and Public Policy
Academic year:

2024
Views:

353

Pages:

5
Author:

Prerna T

National Economic Performance Indicators Key Performance Indicators: Economic growth: Short run: increase in output Long run: continue to increase output Productive potential must increase. Productive capacity increases in economic growth. If productive potential does not increase, the economy will hit a supply constraint. Unemployment: Economy is thought to be doing well when unemployment is low. Unemployment is when people who are willing and able to work are without jobs. Some people between 16 and 65 are not in the labor force (homemakers, disabled, retired early). Economically inactive. Inflation: Sustained rise in price level. Deflation is also possible but not very common. Balance of payments: Record of a country's economic transactions with the rest of the world. Analyzes which products a country buys and sells, which countries it trades with, and which countries it is investing in and receiving investment from. Distribution of income: If a government is concerned that income is too unevenly distributed: May decide to redistribute some income from rich to poor households. This is often referred to as "benefit for poor." Goals of governments: Governments are concerned to promote economic stability. Try to prevent significant fluctuations in output, employment, and inflation. Fluctuations can create uncertainty. It's difficult for households, firms, and governments to plan ahead. Workers may be discouraged from improving skills, firms from investing, and governments from undertaking huge reforms. Reducing fluctuations should increase long-term growth potential. Current trends: Between 1992-2007, the economy was growing. Objectives of government economic policy: Economic growth Want to achieve steady and sustainable economic growth. Increasing standards of living. Steady growth avoids harmful fluctuations. Sustainable growth is growth which can be continued over time. Doesn't affect future generations. Most governments try to ensure aggregate demand matches aggregate supply. Increase in aggregate demand is good for the economy. Governments are trying to reduce pollution and search for cleaner energy resources. Employment: Full employment is a key objective. Some governments aim for high employment, low unemployment. 2-3% is often taken as between jobs. Some people will be between jobs. Governments are increasingly trying to encourage more people of working age to enter the labor force. A high proportion of economically active people should raise productive potential. Inflation: Low and stable inflation (price stability) is the UK target (2%). Don't aim for zero inflation. Measures of inflation tend to overstate price increases. A low level of inflation can bring advantages. It may enable firms to reduce costs by not raising wages in line with inflation, rather than making people redundant. Balance of payments: Previously there was a high emphasis on the current account deficit. Now it is less of a concern if the deficit is likely to be self-correcting. E.g., if imports can be converted into a product that can be exported. Want to be less concerned about the current account deficit if it is offset by a net inflow of direct and portfolio investment. Governments likely want an increase in international competitiveness of producers.