Macroeconomic Targets in the UK - Activity

This Activity is designed to be used in the classroom or as a homework task to support the teaching and learning of Macroeconomic Targets in the UK.

Macroeconomic Targets in the UK - Activity

The aim of this Activity is to enable you to look at the relationships between some of the key macroeconomic targets set by the government. In addition, it will enable you to find and manipulate data provided by Biz/ed, thus helping you to understand more about how to use the site effectively in your studies.

The learning objectives are to understand the following:

  1. The meaning of the key macroeconomic targets set by UK government
  2. What has happened to these targets over the past ten years
  3. The relationship between these variables

The first task is to make sure we understand what the key targets of government macroeconomic policy are:

  • Inflation
  • Unemployment
  • Economic growth
  • The balance of payments on current account

Using the search facility at the top right hand corner of the page, type in the keywords. The search results will present you with a range of possible resources - select the one you require carefully. If the link does not give you the information you require, select the 'back' button and try again! Once you have found all of the information, read it carefully and ensure that you understand what each means. This is basic knowledge (Assessment Objective 1 - AO1) and as such you would be expected to know these!

We are now going to find out what has actually happened to these targets over the last ten years. Most examination boards would expect you to have a working knowledge of the UK economy over the last ten years, so this will provide you with such information!

  1. Go to Biz/ed's Office for National Statistics data
  2. Select 'Sample data available'.
  3. You are presented with a choice of annual data or monthly data - for our purposes, we are going to use annual data. However, if you were doing a more detailed piece of research then the monthly data may be useful! Select the relevant data for the four macroeconomic targets we are investigating.

    You will notice that the data is not neatly titled exactly how we want it! Don't panic - it is all there but sometimes we have to think a bit. Inflation is a general increase in the price level - so the data we want is 'prices'. Note this data is for the Retail Price Index (RPI); this measure is still calculated but the official measure is now the Consumer Price Index (CPI).

    If that was not enough, we are then presented with another choice - do we want to include mortgage interest payments or not? You should know from your studies that there are different measures of the rate of growth of prices in the UK. For our purposes, it does not really matter which one we select, provided we are aware of the nature of the data we are using.

    You are then presented with another choice - HTML or CSV! Look at both - HTML presents the data in tabular form - we can highlight the required data and copy it into a spreadsheet - highlight the data from 1992 - 2002, right click, then copy. With your spreadsheet package opened, you can both highlight the same number of cells and paste it across or you can simply right click in one cell and then paste. In the cell above the first piece of data (not the year!) insert the heading 'Inflation'. If you now highlight the whole of the information you can graph the data. Add titles, legends and so on as prompted by the chart wizard. Save your chart.
  4. Follow the same process for the other three pieces of data. Try using a CSV file for at least one of them so that you can see the difference in the way the data is presented and can be used (a brief explanation of the difference can be found at the top of the Sample data page).
  5. Once you have got the four pieces of data and have them in graphical form we can now start to do some simple analysis of the data.
  6. At the most simple level, comment on what has been happening to the targets - are they rising or falling? Is the general trend up or down and is the movement volatile or sluggish? At a slightly higher level, you would be expected to comment on the RATE of growth of the data, i.e. if unemployment is rising, is it rising quickly?

If you are really brave, you can use the spreadsheet to calculate the growth rates for the data and then graph this! To do it, follow the steps below. The table represents what your spreadsheet page will look like when you copy the data across from the ONS site and have completed the tasks - the guide below explains how to get to this stage.

  B C D
3 1992 651566  
4 1993 667804 2.49215
5 1994 698915 4.658702
6 1995 719176 2.898922
7 1996 738046 2.623836
8 1997 763459 3.443281
9 1998 785777 2.923274
10 1999 804713 2.409844
11 2000 829517 3.082341
12 2001 845552 1.933053
13 2002    

Having copied the information across, I need to put in a formula to calculate the percentage change for each year. As with any percentage change, we take the change in the data, divide it by the original or starting date and multiply by 100. Point your mouse into cell D4 and type =((C4-C3)/C3)*100 when you press the return button you will get the percentage change - 2.49215! You can now copy this formula to the other cells. Click on cell D4 - the cell will now have a black outline; move your cursor to the bottom right of the cell and a small black cross will appear, drag this down to cell D12 and the rest of the calculations will appear!

Shanty river boats.

Economic Growth is seen as one way of increasing living standards. © Photolibrary Group

Now we need to do some really serious analysis - and introduce some evaluation!

We know what changes have occurred; now we need to assess the possible links between the data. This all relies on you having a good understanding of what the meaning of each of the targets is! So if you just copy and paste information without reading it or seeking to understand it you are not going to be able to do this section.

Below are some guidelines for you - see how far you can take them.

  • If economic growth is rising, it suggests AD is increasing - why? It could be due to any of the factors influencing AD - C, I, G or (X-M). If AD is rising then what, according to basic economic analysis, is likely to be happening to the price level and to real output?
  • If real output rises, what does this tell you about what is likely to be happening to unemployment?
  • Given the changes in economic growth, what would you expect to be happening to the amount of goods we buy from abroad - don't forget it is not only consumer goods we buy from abroad but also capital goods!
  • What reaction might exporters have to the changes in economic growth in the UK - will they seek to supply a growing home market or will things in the UK be getting worse? As such, will they be looking to maintain sales by seeking export markets abroad?
  • What will be the influence on the targets of the speed with which the economy is growing?
  • How closely does your analysis of the theory seem to be supported by the data you have collected?

If you have followed the steps above, you will have produced a piece of work that goes a long way towards meeting the whole range of assessment objectives for any examination.

Now try the following exam style question:

Assess the impact of a significant reduction in the level of indirect taxes on the government's macroeconomic targets. (15 marks)

Ensure you understand:

  1. The meaning of the key government economic targets - inflation, unemployment, balance of payments, economic growth.
  2. What has happened to these key variables over the last ten years.
  3. The relationship between these variables.

Having carried out some data analysis, have a look at Biz/ed's Key Economic Data section
( where further opportunities are available for analysing the relationship between key macroeconomic data.