OCR AS Level Economics: Trends in macroeconomic indicators (H060) – Revision Notes

These notes condense the topic Trends in macroeconomic indicators from Component 02, Macroeconomics, of the OCR AS Level Economics (H060) specification, for first assessment in 2016. Fuller explanations are in the study guide; test yourself with the practice questions. The related topics are in the growth and GDP, unemployment and inflation revision notes. Use the OCR AS Economics hub, the printable checklist and the free 10-minute diagnostics. All data in the worked reminders is invented.

What the specification asks

Outcome	One-line summary
Explain the key trends in UK macroeconomic performance in the last 20 years	Describe how growth, unemployment, inflation (and the external position) have moved, and why
Evaluate the current performance of the UK economy compared with other developed, emerging and developing economies	Compare like with like, then judge

Key definitions

Term	Meaning
Trend	The general direction of a series over several years
Level	Where a series stands at one date
Rate of change	Percentage change from one period to the next
Percentage point	The unit for the change in a rate (unemployment 6.0% to 4.5% is a fall of 1.5 percentage points)
Economic cycle	Swings of actual output around the long-run path
Peak and trough	Turning points: the top and bottom of an upswing and downswing in output
Recession	A fall in real output; commonly two quarters in a row of falling real GDP
Disinflation	Inflation is still positive but lower than before; the price level keeps rising more slowly
Deflation	A fall in the general price level
Developed, emerging, developing	Groups by income level and speed of change: high income, fast-industrialising, and low income
GDP per head	GDP divided by population

Formulas and methods

Measure	Formula
Growth rate (%)	(new - old) / old x 100
Compound average growth (%)	((final / first) to the power of 1/n - 1) x 100, with n yearly steps
Peak-to-trough change (%)	(trough - peak) / peak x 100
Unemployment rate (%)	unemployed / labour force x 100
Real wage change	roughly nominal wage growth minus inflation (exactly (1 + w) / (1 + p) - 1)
Current account as % of GDP	balance / GDP x 100
Real GDP per head growth	roughly real GDP growth minus population growth

Method: describe a trend in four steps

1. State the direction and the size: “real GDP rose from 200 to 214, up 7.0%”.
2. Name the turning points: peak, trough, and when the level recovered.
3. Compare periods: average growth before and after a shock.
4. Give a likely cause, linked to AD or AS, using “could” if the data does not name it.

Worked reminder: Country Z

Real GDP in Country Z is 200 in year 1, 214 in year 2 and 207 in year 3.

• Year 2 growth = (214 - 200) / 200 = 7.0%.
• Year 3 growth = (207 - 214) / 214 = -3.27%.
• Over both years real GDP is 3.5% higher than at the start, even though the last year was a contraction.

Worked reminder: inflation and real wages

The price index rises from 160 to 168, so inflation = 8 / 160 = 5.0%. Nominal wages rise by 2.0%. Real wages change by 1.02 / 1.05 - 1 = -2.86%, a clear fall in real purchasing power.

Worked reminder: percentage points

Unemployment in Country Z is 1.2 million of a labour force of 24.0 million: 5.0%. After a recession it is 1.68 million of 24.0 million: 7.0%. The rise is 2.0 percentage points, not 2%. In percentage terms the number unemployed has risen by 40%.

Worked reminder: compound average growth

Real GDP index rises from 100 to 121.6 over 8 years. Average annual growth = (1.216 to the power of 1/8) - 1 = 2.47% a year.

Worked reminder: per head

Country Z has GDP of 540 billion currency units and 12.0 million people, so GDP per head is 45,000. If real GDP rises by 3.0% and population by 1.0%, real GDP per head rises by about 1.98%, close to the 2.0% rule of thumb.

The UK over about the last 20 years: recall table

This is a summary for organising your answer. It is not a data source; use the figures you are given in a question, and check anything else against the Office for National Statistics.

Phase	Pattern to recall	Cause to link
Mid-2000s	Steady growth, low unemployment, inflation near the 2% target, a current account deficit	Strong consumer spending, easy credit, cheap imports
2008 to 2009	Deep recession, rising unemployment (less than the output fall implied), Bank Rate cut to 0.5% in March 2009	Financial crisis, loss of confidence, credit shortage
2010s	Slow recovery, weak productivity growth, falling unemployment, budget deficit reduced	Low investment, tight fiscal policy, low interest rates
2020 to 2021	Sharp fall then rebound in output, unemployment up by less than feared, very large deficit	Public health restrictions, income support, Bank Rate cut to 0.1% in March 2020
2021 onwards	Inflation surge (CPI peaked at 11.1% in October 2022), Bank Rate raised to 5.25% by August 2023, weak growth	Energy and import prices, supply bottlenecks, tighter policy

Across the period: a persistent current account deficit, slower productivity growth after 2008 to 2009, and policy that shifted between loose and tight.

Comparing the UK with other economies: checklist

Group	Typical features	Watch for
Developed	High income per head, services-led, slower growth	Similar structure, so differences often come from policy or shocks
Emerging	Fast growth, industrialising, rising incomes	Low starting base; may face high inflation or volatile capital flows
Developing	Low income per head, often dependent on primary products	Fast population growth, volatility, limited data quality

Questions to ask whenever you compare:

1. Is it the same year, the same definition and the same unit?
2. Is the comparison in totals or per head?
3. How far does the starting level differ?
4. Is the data one year or an average?
5. What does the indicator leave out, such as distribution, quality of jobs or the environment?

Must-know distinctions

• Level versus rate. A falling unemployment rate can still mean unemployment is above its old level.
• Growth versus recovery. Positive growth after a recession does not mean lost output is back.
• Disinflation versus deflation. Falling inflation is not falling prices.
• Totals versus per head. Population growth can make strong growth look weak in living standards.
• Percentage versus percentage point. Use the right one for rates.
• Simple versus compound average. Compound is correct for growth over several years.

Quick self-test

1. Real GDP index rises from 80 to 88. Calculate the percentage growth.
2. Unemployment falls from 6.0% to 4.5%. State the change in percentage points and in percentage terms.
3. Real GDP rises from 300 to 309 while population grows by 1.0%. Calculate the growth in real GDP per head.
4. Explain why growth of 2.0% after a recession does not mean the economy has recovered.
5. State the difference between disinflation and deflation.
6. Name two features that distinguish emerging from developed economies.
7. Give one reason why comparing growth rates of an emerging economy and the UK may mislead.
8. Give two long-run trends in UK macroeconomic performance since the mid-2000s.
9. A country has a current account deficit of 36 on GDP of 1,200. Express it as a percentage of GDP.
10. Say why unemployment may fall more slowly than output recovers.

Answers

1. (88 - 80) / 80 = 10.0%.
2. 1.5 percentage points; in percentage terms (4.5 - 6.0) / 6.0 = -25.0%.
3. 309 / 300 = 1.03, and 1.03 / 1.01 - 1 = 1.98%.
4. Output may still be below its previous peak, and spare capacity and unemployment may remain, so the level has not recovered.
5. Disinflation means inflation slows but stays positive; deflation means the general price level actually falls.
6. Any two of: faster growth, lower income per head, industrialisation, a larger primary or manufacturing sector, a younger or faster-growing population.
7. The emerging economy starts from a much lower base, so a high percentage growth can be a small absolute rise.
8. Any two of: a persistent current account deficit, weaker productivity growth after 2008 to 2009, an inflation surge after 2021, large budget deficits after 2008 to 2009 and 2020.
9. 36 / 1,200 x 100 = 3.0% of GDP.
10. Firms rehire cautiously, some job losses are structural, and workers may need retraining or to move.

Where marks are usually lost

• Describing a series without quoting numbers from the data given.
• Mixing up percentage points and per cent for changes in rates.
• Saying “the economy recovered” because growth is positive.
• Using a simple average of growth rates where the question needs a compound figure.
• Comparing countries on different years or measures.
• Giving causes without linking them to AD or AS.
• Quoting remembered UK statistics from outside the question without a year.
• Listing differences between economy groups without a judgement about UK performance.

Frequently asked questions

How do you calculate real wage growth? Divide one plus the growth in nominal wages by one plus inflation and subtract 1. If nominal wages rise by less than prices, real wages fall.

What trends has the UK shown over the last 20 years? The OCR AS Level Economics (H060) notes highlight a persistent current account deficit, slower productivity growth after 2008 to 2009, and policy that shifted between loose and tight.

Why use GDP per head rather than total GDP? Population growth can make strong total growth look weak in terms of living standards. Real GDP per head grows by roughly real GDP growth minus population growth.

What is the difference between a level and a rate? A level is where a series stands, such as the number unemployed, while a rate is how fast it is changing. A falling unemployment rate can still leave unemployment above its old level.

Official syllabus

These notes follow the OCR AS Level in Economics (H060) specification, for first assessment in 2016, published by OCR (Oxford Cambridge and RSA Examinations). The topic Trends in macroeconomic indicators sits in the Area of Study Economic policy objectives and indicators of macroeconomic performance, Component 02, Macroeconomics.