Download Explain what data might be employed in this assessment of

Explain what data might be employed in this assessment of
economic health
The Chairman of a national bank stated “it is important to rely on a range
of qualitative and quantitative data to assess the economic health of a
nation.” Explain what data might be employed in this assessment and
discuss how useful it is likely to be.(25)(OctlNov 2007 Paper 4)
To assess the economic health a vast range of data may be used. To judge economic
health, in terms of macroeconomic performance, economists consider four main
figures. These are: the economic growth rate, the unemployment rate, the inflation
rate and the current account position.
An economy may be considered to be healthy if its economic growth rate matches its
trend growth rate, if its unemployment rate and its inflation rate are low and its current
account position is in balance. Of course, a fuller picture can be gained by examining
trends in these figures. How useful this information is obviously depends on its accuracy
and whether it can be used for international comparisons. Figures on economic growth,
unemployment and inflation may not be very accurate if there is a large informal eco
nomy. Examining unemployment figures based on the Labor Force Survey method will be
more useful than examining unemployment figures based on the claimant count when
comparing the economic health of the nation with other countries.
As well as considering trends in economic growth, inflation, unemployment and the
current account position, it is also useful to examine the nature of these changes.
Sustainable economic growth is obviously more beneficial than unsustainable economic
growth. A fall in unemployment which is accompanied by a rise in employment in full time, high quality jobs would indicate a healthier economy than a fall in unemployment
which either sees a rise in economic inactivity or a rise in employment in low quality,
part-time jobs. Stable inflation is preferable to fluctuating inflation as it is easier for the
government, firms and households to plan. A decline in a current account deficit
caused by an improvement in international competitiveness is more beneficial than a
reduction resulting from the economy entering a recession. The former might be more
long lasting and may be accompanied by a rise in employment.
A key aspect of the economic health of a nation is the living standards of its citizens. One
common measure of living standards is real GDP per head. A high real GDP per head is
usually assumed to indicate a high standard of living. There are, however, a number of
limitations of this measure. For instance, if income is unevenly distributed, most people
may not benefit from a high real GDP per head and the measure does not take into
account a range of factors that affect living standards including leisure time and pollution.
The Human Development Index (HDI) also fails to include leisure time and pollution but it
is more wide ranging than real GDP per head. As well as real GDP per head, it includes
life expectancy and education, as measured by adult literacy and school enrolment.
Each year the United Nations publishes the HDI index, ranking countries according to
their HDI values.
Among other data which can be examined to assess the economic health of a nation is
growth in investment, changes in profit levels, changes in foreign direct investment (FDI)
and net immigration. A healthy economy might be expected to have increasing net
investment, rising profit levels, increasing FDI and net immigration. If an economy is
doing well, consumer demand is likely to be increasing. This may lead to higher profit
levels which, in turn, may increase net investment. A buoyant economy would also tend
to encourage foreign firms to set up in the country and to attract foreign workers to
move to the country. Of course, it is possible that rising profit levels may be the result of
increased market concentration which in the long term may disadvantage consumers.
Increasing FDI may be more the result of a downturn in the countries the firms are
coming from and although a desire for improved living standards is the main motive for
workers to emigrate, there other reasons including political persecution.
There is no lack of data that can be employed to assess the economic health of a nation.
Care, h o w e v e r , h a s
to b e taken
in selecting and i n t e r p r e t i n g the
information used.