Key real world examples for macroeconomics 2024

Here are some key real world examples for macroeconomics. Correct as of 1st May 2024.

Here is a link to a list of key micro real world examples.

For more A-level Economics resources, including practice papers and model answers, click the link below:

Key macro indicators – growth, employment and inflation

• Economic growth:
  • The UK economy entered recession at the end of 2023, with the economic growth rate being -0.3% in the fourth quarter of 2023.
  • However economic growth rates have been higher for the UK at the start of 2024, with the economy growing 0.6% in the second quarter of 2024 compared to the first quarter.
  • Annual GDP growth was 2.7% per year on average, in the decade before the 2008 financial crisis. Following the 2008 financial crisis, the UK economy, the growth rate has averaged nearer 1.7%. This suggests a fall in the long-run trend rate of economic growth for the UK economy.
• Unemployment and economic inactivity:
  • The rate of unemployment in the UK has fallen from 5.3% in the three months to January 2021 to 3.8% in the three months to December 2024.
  • However the unemployment rate has risen to 4.2% in the three months to June 2024. Unemployment has remained near 4% since the end of 2021.
  • The UK economy is facing a challenge of high economic inactivity – people not in work and who are not looking for work. These people do not count as being unemployed.
    • There were 9.4 million people classed as being “economically inactive” in the UK in 2023. However this mostly includes students, carers, those who have retired and those who are sick.
• Inflation:
  • The UK has witnessed disinflation, a fall in the rate of inflation.
  • Specifically, the UK rate of CPI inflation has fallen from 11.1% in October 2022 to 2.2% in July 2024.
  • High inflation in the UK in 2022 and early 2023 contributed to an increase in the cost of living for households, particularly with food and energy price rises. Low income households experienced a higher than average inflation rate.
  • The causes of this high inflation included increasing energy prices, supply chain disruption and increasing global demand for consumer goods.
  • In this period, some workers saw their pay fall in real terms (the rate of inflation exceeded the rate at which their nominal pay increased). This contributed to strike activity in the UK in 2023.

Fiscal policy

• At the start of the Covid-19 pandemic in 2020, the Government debt to GDP ratio increased. It has remained at an elevated level since.
  • Specifically the UK’s Government debt to GDP ratio reached 97.6% of GDP in 2023.
  • During the pandemic, the UK Government spent money on the furlough scheme and business support loans, among other things. It also had to face lower tax receipts.
• Recent fiscal policy:
  • Starting from April 2023, the UK rate of corporation tax has increased from 19% to 25% for companies earning profits above £250,000.
  • The UK Government has frozen the personal allowance income tax threshold at £12,570 until 2027-28. Provided wages rise in nominal terms, this is likely to drag more people into paying income tax.
  • At the same time, national insurance rates have been cut from 10% to 8%. This tax cut increases the disposable income of 27 million employees in the UK, with an employee on a salary of £35,000 receiving an extra £450 a year.

Monetary policy

• Broadly, the Bank of England has raised interest rates since the end of 2021. It has also engaged in quantitative tightening, the reverse of quantitative easing.
• The Bank of England’s interest rate, Bank rate, has risen from 0.1% in 2021 to 5.25% in August 2023. Bank rate has remained at 5.25% until it was cut to 5% in August 2024.
• Quantitative tightening: The Bank of England’s asset purchases (mostly government bonds) under quantitative easing stand at £691 billion as of July 2024, down from a peak of £895 billion.
• Banks in the UK faced accusations of not passing on interest rate rises to savers quickly enough.

Supply-side policies

• Education – the UK Government is spending £2.5 billion on the National Skills Fund. This helps pay for free adult training for level 3 qualifications.
• Infrastructure:
  • The UK Government is funding High Speed Rail 2 (HS2) between London and Birmingham. This is expected to cost up to £66.5 billion.
  • This is expected to reduce travel time between London and Birmingham from 1 hour 21 minutes to 49 minutes.
  • However the majority of HS2 will only be completed by 2033.
• Deregulation:
  • The UK Government is attempting to deregulate financial markets.
  • This includes plans to reduce the amount of funds that insurance companies have to hold in reserve.
  • Also there are plans to loosen the separation between commercial and investment banking divisions of banks.
• Tax cuts:
  • Cuts to the rate of national insurance (see the fiscal policy section).
  • The US Government cut taxes in 2018, cutting (marginal) income tax rates by up to 2-3 percentage points depending on the tax band.
  • The US tax cuts also led to corporation tax rates changing. Beforehand, corporation tax rates varied from 15% to 39%. However the US introduced a flat 21% corporation tax rate, a large tax cut for most firms.
• Privatisation – the water industry. See the micro real world examples here for more information.

Tradeoffs between macroeconomic objectives

Objective tradeoffs:

• Economic growth / full employment and low, stable inflation:
  • Despite inflation falling from 11.1% in October 2022 to 2.2% in July 2024 for the UK, the unemployment rate has risen only from 3.8% at the end of 2023 to 4.2% in the three months to June 2024.
    • This suggests the tradeoff between inflation and unemployment has been weakened.
    • Part of the cause could be the expansion of the gig economy, which includes firms such as Uber and Deliveroo.
  • Similarly, during the 2000s decade, inflation was stable around the Bank of England’s 2% target while unemployment was falling (at least before the 2008 global financial crisis).
    • This again suggested the tradeoff between unemployment and inflation had been broken.
    • This could be attributed to the Bank of England’s operational independence and their 2% inflation target, which helped solidify investor expectations of inflation.
• Economic growth and inequality
  • Automation and globalisation have contributed to economic growth but also to rising inequality.
  • Automation explains 50 to 70% of the rise in income inequality from the 1980s up to 2016 in the US. (Acemoglu and Restrepo 2021)
  • Globalisation has contributed to deindustrialisation in the UK, with the proportion of workers in industrial employment falling from 48% in 1957 to 15% in 2016. Meanwhile globalisation has benefitted the financial services industry in the UK, which alone makes up about 8% of UK GDP.
• Economic growth and the environment:
  • Global economic growth involves an increase in production, which may increase the level air and water pollution as by-products of production. Air pollution is linked with over 11% of all deaths around the world, including through worsening breathing problems such as asthma.
  • US$21 billion is the annual global healthcare cost associated with pollution.
  • Economic growth has also increases real incomes, leading to higher consumption. Production and consumption of household goods and services contributes to 60% of global emissions of greenhouse gases.
  • However 73% of consumers in the European Union state the environmental impact of a product is important when it comes to their buying decisions.
  • Economic growth may be driven by growth of “green sectors”, such as renewable energy, household energy efficiency and electric vehicles. This may reduce pollution levels as people switch from using fossil fuels to renewables. The percentage of new cars that are electric in the UK as increased from 6.6% in 2020 to 18.1% in 2024.

Policy conflicts (how policies lead to tradeoffs between macroeconomic objectives)

• Monetary policy:
  • Higher interest rates in the UK in 2022-24 contributed to disinflation.
  • However, higher interest rates have also slowed the rate of economic growth. [See above for specific facts on interest rates, inflation and economic growth in the UK].
• Fiscal policy:
  • Expansionary fiscal policy in the UK during the Covid-19 pandemic helped keep workers in their jobs, reducing the rate of unemployment.
  • However it increased the budget deficit and some argue that expansionary fiscal and monetary policy contributed to high inflation in 2022.
• Supply-side policies:
  • Supply-side policies, by shifting the LRAS to the right, boost economic growth rates, while lowering the rates of unemployment and inflation.
  • However market based supply-side policies may increase the level of inequality. For example, during the Thatcher government in the UK, privatisation, deregulation and tax cuts took place. These coincided with the rise in inequality.
  • Interventionist supply-side policies may increase the budget deficit. See the example above on HS2.

Trade and the balance of payments

Trading blocs and agreements:

• The UK has left the European Union and entered the Trade and Cooperation Agreement with the EU. This includes tariff-free trade for goods. However there are new nontariff barriers, such as safety checks and customs declarations.
• In the meantime, the UK has signed trade deals with individual countries such as Australia, as well as with the CPTPP group of countries. The CPTPP includes fast growing economies such as Vietnam. However the CPTPP deal is only projected to increase UK real GDP by 0.08% over ten years.
• The European Union is a single market. The EU accounts for 14% of global trade in goods.
• Most EU countries export 50-80% of theirs goods to other countries in the EU.
• An example of monetary union is the Eurozone. This is a group of 20 countries that share the euro as its currency.
• Most EU countries export 50-80% of theirs goods to other countries in the EU.
• Note the European Union is not the same as the Eurozone. The European Union (EU) is a single market – a trading bloc with no trade barriers and free movement of factors of production. The EU includes more countries. For example, Denmark is in the EU but not in the Eurozone, as it has its own currency.

Protectionism:

• The US imposed a 25% tariff on steel imports and a 10% tariff on aluminium impots in 2018. 
• The European Union retaliated with its own tariffs on goods coming from the US into the EU, including on motorcycles, orange juice and other agricultural goods.
• 12 million jobs in the US are in industries that use steel as an input in their production process. This includes car companies such as Ford and General Motors, whose costs of production increased following the tariff.
• The UK has quotas on sheep meat from New Zealand. This is a transitional quota applying during a 15 year transition period, whose goal is to protect UK sheep farmers.
• See the UK leaving the EU for paperwork as a non-tariff barrier.

Comparative advantage

• The UK has comparative advantages in financial services, business services and pharmaceuticals.
• Spain has comparative advantages in fruit, motor vehicles and tourism.

Balance of payments:

• The UK has run a current account deficit every year since the 1980s.
  • In 2023 the UK’s current account deficit was 3.3% of GDP.
  • However the UK does run a financial account surplus. The City of London remains a major global hub for financial services including banking and insurance.
• An example of a country with a current account surplus is Germany.
• For policies to correct balance of payments imbalances, I recommend using the examples of trade policy as well as supply-side, fiscal or monetary policies mentioned earlier.

Exchange rates

Floating currency:

• In the last fifteen years, the pound sterling has depreciated against the dollar. From 1 pound to 1.64 US dollars in 2009 to 1.26 US dollars per pound today.
• This reflects weaker economic growth and weaker growth prospects in the UK relative to the US.
• The decision to vote for Brexit led to a 10% fall in the value of the pound against the dollar on the night of the referendum result.
• The Truss-Kwarteng budget event of September 2022 contributed to the pound reaching a low of 1 pound to 1.08 US dollars. Since this event, the pound has returned to a value of 1.26 US dollars.

Fixed or managed currencies:

• Saudi Arabia has a fixed exchange rate which is pegged to the value of the US dollar. The exchange rate is 3.75 riyal to 1 US dollar.
• In October 2022, Japan has intervened in the currency market, by selling dollars and buying yen, to maintain the value of the yen.

Development and globalisation

• Multinational companies – Nigeria hosts several multinational companies, including Coca-Cola, Nestle as well as various oil operations. Starting in 2023, some multinational companies have been leaving Nigeria or downsizing, such as Unilever. Communities in Nigeria have also suffered from oil spills, harming agriculture.
• UK has faced deindustrialisation, in part because of greater international competition. In 1966 manufacturing represented 30% of all UK employment but this is down to 7.7% as of 2019.
• Globalisation has led to some companies moving their production overseas, including many clothing companies like Nike. This has resulted in lower costs for the business and hence lower consumer prices. However there have been accusations of poor working conditions in some of these clothing factories.
• Poverty and education – The Human Development index for Ethiopia is 0.38. Learning Poverty, a measure of the fraction of children who can read and understand a simple text by age 10, is very high, with 90% of children at this age not meeting this standard. Primary school education expenditure per child is 78.6% below the average for the Sub-Saharan Africa region.
• Primary product dependency – diamonds are the top export of Botswana, accounting for 90% of export revenues.
• Aid – aid with IMF conditions attached, including supply-side reforms and that governments cut their budget deficits, has led to protests in Argentina and Egypt. However the incidence of malaria has dropped by 57% from 2000 to 2015, in part owing to aid, including the provision of bed nets.
• Trade – Ethiopia has significantly liberalised trade. In the early 1990s and 2000s, there was a large fall in import tariff rates for Ethiopia. The average tariff rate fell from 23.2% in 1998 to 12.31% in 2006 (World Bank, Fiorini et al. 2021).

For inequality, see the list of micro real world examples.

There are several other examples you should be looking into ahead of macro exams, including financial markets and other development barriers and policies. These facts and trends can be a great starting point!

Remember you can use facts from multiple areas in each essay. Discussing macro objectives? Perhaps it’s relevant to bring in economic growth and inflation figures for the UK for example. Talking about trade? Bring in information on the current account and exchange rates if relevant to the question. The good thing about macroeconomics real world examples is that facts can be used for several different essay questions, where appropriate.

Also, make use of what you know. If you know a lot about the clothing industry, perhaps you can tie that into globalisation. If you know a lot about technology, you can use that knowledge to discuss tradeoffs between economic growth and inequality.

Here is a link to a list of key micro real world examples.

For more A-level Economics resources, including practice papers and model answers, click the link below:

I have mentioned some of the sources for the facts above. More generally, you can find most of these facts, including the latest numbers, on websites like the ONS, UK Government, Trading Economics and miscellaneous others.