Explain what data might be employed in this assessment of economic health and discuss how useful it is likely to be

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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)

(Oct/Nov 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 economy. Examining unemployment figures based on the Labour 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.

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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 ...

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