Question

Assessing Macroeconomic Performance

What measuring sticks/metrics you would use in order to accomplish your assessment of how the economy is doing.

Explanation of my question:

Assume you are asked the question, “How is the economy doing?” What specific metrics or measuring sticks do you believe should be noted and/or analyzed in order to arrive at an accurate reading of how the economy is doing and where it is headed. Like, how one should go about assessing the performance of the U.S. economy or the process (focusing on the appropriate variables-metrics-measuring sticks) involved in arriving at such an assessment and not actually assessing the performance of the economy. Can you identify between 6-10 metrics and explain why you chose it and how you would use it. (Not sure if that is too much, just looking for a thorough explanation.) I have an exam in a little while and this would really help me to understand. Thank you.

Answer 1

Some of the parameters to measure the performance of an economy are-

1. Measure of Real GDP: Real GDP (Gross Domestic Product) measures the volume of output by considering the inflation level. Increase in Real GDP means aggregate demand is more than the inflation level.
2. Competitiveness of Exports: Country’s exports plays a major role in its trade balance as well as a significant indicator of the performance of the economy. Exports of a country balances its exchange rates in international market and help to accumulate foreign reserves.
3. Inflation: The level of inflation is one of the clear indicator of the economy. When inflation levels are too high the purchasing power of the people decreases and aggregate demand falls. On the other hand low levels of inflation signifies a sluggish economy
4. Unemployment: The levels of unemployment indicates a countries upcoming growth prospects. Higher levels of unemployment usually treated as economy is hit by recession.
5. Exchange Rates: The exchange rates of a country is a face value of its economy. The exchange rates gives an idea how well the country is performing. It signifies its currency power
6. Debt levels: Country’s fiscal deficit is one of the observatory parameter. The debt level of the economy assures its performance
7. Measure of Human Poverty Index: HPI is a qualitative measure of a economies performance. It signifies how well the government is able to allocate its resources to the most needy people
8. Current Account Deficit: It indicates that the country is mostly importing rather than exporting. Most of the developed economies are in surplus and the developing countries runs through deficit .