2:1:1 - Measures Of Economic Performance - Economic Growth Flashcards
What is Microeconomics?
Is the study of individual markets within an economy
What is Macroeconomics?
Is the study of the economy as a whole.
What does the Economic system attempt to resolve?
The basic economic problem (of scarce resources in a world infinite wants)
What is Economic Growth?
Is the rate of change of output
Why is there a standard definition of output?
So we can compare measurements with other countries.
What is the measure of Economic Growth?
GDP (Gross Domestic Product)
Why is Economic Growth desirable?
Individuals prefer to consume more rather than fewer goods and services.
Evaluative points for Economic Growth being desirable?
Based on the assumption that wants are infinite.
Why is Unemployment a major problem in society?
Represents a waste of scarce resources
Why is unemployment an indicator of poor national economic performance?
- Output could be higher if unemployed were in work
- Leads to poverty for those who are out of work.
Why are Economic Growth and Unemployment linked?
- Fast-growing economies tend to have low unemployment because more workers are needed to produce goods and services
Evaluative point for the link between Economic Growth and Unemployment.
Technological change allows economy to produce more with fewer workers.
What happens to Unemployment if Economic Growth is negative?
Firms lay off workers and unemployment will rise.
What does a higher rate of job creation show about an economy?
There is fast economic growth.
Define Inflation.
Is the general increase in prices of an economy.
Which is seen to be better low or high inflation?
Low inflation is generally seen to be better
Effects of Inflation.
- Means that the value of what savings can buy falls
- Disrupts the knowledge of prices in a market
What is GDP a measure of?
Economic growth
What is ACTUAL economic growth?
Is an increase in real incomes or gross domestic product (GDP)
What is Potential Economic Growth?
Is an increase in the productive capacity in a country
What are the differences between actual and potential economic growth called?
Output gap
What is taken into account when calculating GDP?
- Sum of all the goods and services produced in a country in 1 year
- Sum of all incomes earned in a country in a year
- Sum of all expenditure in a year
Does GDP include earnings from residents while outside the country?
NO
What is the GDP of the UK?
£1.4 trillion
Who calculates the GDP?
Government
What can cause the GDP figure to be inaccurate?
- Errors and Omissions
Why is GDP not the same as Economic Growth?
Because for GDP we need to know
- how many people there are
- the value of the currency in terms of spending power
- what changes have been made since the previous measure
What does a increasing GDP show?
Economic growth (increasing: incomes, output and spending)
What is Deflation?
Falling Prices
What is a nation’s spending on foreign goods and services known as?
Value of its imports
How does a nation pay for these imports?
By selling goods and services (exports)
When is an economy sounds in the Balance of Payments eyes (imports & exports) ??
When exports are greater or equal to its imports
What is it called when exports are greater than imports?
A Current Account Surplus
What is it called were imports exceed exports?
A Current account Deficit
When do deficits become a problem for a country?
When banks stop lending money to the government.
What happens when banks stop lending to the government?
Credit Crunch
How do countries respond to banks no longer lending (when the deficit becomes too great) ??
Have to restore confidence
- Done by cutting public spending which then leads to reduced economic growth and rising unemployment.
What is increasing GDP a sign of?
A sign that a country is experiencing increasing incomes, output and spending
How is GDP linked to standard of living?
Increasing GDP means people can have more goods and services, implying they have a better standard of living
Evaluative points for Increasing GDP improving Quality of Life.
- Someone earns more,
• they may work more hours
• Pollution is likely to increase as they travel further distances(so many more social costs)
• Get more accurate results GDP should be calculated by GDP per capita (per head)
Economic Growth is measured using [……….][……..]
National Income
Why is measuring Economic Growth using National Income meaningless?
Because they are nominal values (not taking into account inflation)
- If Inflation is 2% and your wage rise is 2%, your real wages have not risen at all!
What is meant by Real Values?
Have been adjusted to remove the effects of inflation
What is meant by Nominal Values?
Current incomes that you would see if they were unadjusted (not taking into account inflation)
Why are Values and Volumes important when measuring Economic Growth?
- Firms may achieve higher sales figures because they sell more in volume.
- but if those sales are worth less per unit then they are not seeing an increase in the value of their output.
What is Gross National Product?
Is the total market value of all goods and services produced by domestic residents.
How is GNP calculated?
GNP = GDP + income residents have received from abroad - income claimed by non residents
When may GNP be much lower than GDP?
If much of the income from a country’s production flows to foreign people or firms
What may cause GNP to be higher than GDP?
People or firms of a country hold large amounts of stocks, bonds of firms and receive income from them.
What is GNI?
Measures income received by a country both domestically and from overseas
What does GNI stand for?
Gross National Income
How is GNI calculated?
GNI = GDP + Income paid into the country by other countries
Similarities of GDP and GNI?
Both measure output from the citizens and companies of a particular nation.
Evaluative points of growth figures (GDP figures) depends on.
- How well odd the country is in the first place
- How much of the Output is self consumed, so it doesn’t appear on GDP
- Methods of calculation and reliability of data
- Relative exchange rates - do they represent purchasing power of the local currency
- Type of spending by government - is money spent on warfare or quality of life issues?
What are Purchasing Power Parities?
When values are expressed in accordance with the amount that the currency will buy in the local economy. Basket of goods bought in Japan to same basket in US
What is analysing Purchasing Power Parities useful for international comparisons?
Much more helpful because where the cost of living is high it would be expected that the PPP value of the GDP would be lower.
Limitations of using GDP to compare living standards between countries over time.
- Subsistence, barter and the hidden economy
- The informal economy
- Currency Values
- Income Distribution
- Size of the Public Sector
- Consumer and Capital Spending
- Quality Issues
Limitations of using GDP to compare living standards between countries - what is Subsistance, barter and the hidden economy?
- If farmers consume their own output ( Subsistence )
- If goods are traded without the price system (Barter)
- Goods are bought without being declared for tax purposes, National income will not reflect the true standard of living. (Hidden Economy)
Limitations of using GDP to compare living standards between countries - What is the Informal Economy?
When some output is not bought or sold and is not recorded, but is still output.
Limitations of using GDP to compare living standards between countries - What is meant by Currency Values?
Purchasing Power of that country
Limitations of using GDP to compare living standards between countries - What Is meant by Income distribution?
- Income per head, some sense of income distribution should be taken into account
- Large proportion of income earned by very few which makes the mean income much higher than the income enjoyed by the ordinary person
Limitations of using GDP to compare living standards between countries - What is meant by the Size of the Public Sector?
- If much of the spending in the economy is by the government, it might or might not improve welfare for the population.
Limitations of using GDP to compare living standards between countries - What is meant by Consumer and Capital Spending?
- Spending in Investment goods might mean standard of living increases in the future, but at the expense of living standards today.
- Economic figures should be broken down to look at the investment element
Limitations of using GDP to compare living standards between countries - What is meant by Quality Issues?
- Are improving results enough to prove that living standards are rising?
[…..][……..][……][…..][…..] is a good guide to actual growth if the limitations of using GDP to compare living standards between country factors are taken into account.
Real income growth per head
Is National Happiness a limitation of using GDP to take into account other measures of living standards.
Yes
What is meant by Gross National Happiness Index? (GNH)
Is an indicator that measures quality of life in more holistic and psychological terms than only using GDP.
Evaluative point for National Happiness.
- It has only been used in Bhutan.
- In the UK the ONS measures national Well-Being
What is meant by Easterlin Paradox?
Is the idea that happiness rises with the average incomes, but only up to a point.
With Easterlin Paradox what happens to happiness when it reaches this ‘point’ in time?
The marginal gains in happiness fall.
