2-1 Measures of economic performance Flashcards
1
Q
When does economic growth occur?
A
- When there is a rise is GDP
2
Q
What is GDP?
A
- Measures the quantity of goods and services produced in an economy
3
Q
What is real GDP?
A
- GDP adjusted for inflation
4
Q
What is nominal GDP?
A
- GDP not adjusted for inflation
5
Q
What is total GDP?
A
- Combined monetary value of all goods and services produced within a country’s borders over a given time period
6
Q
What is GDP per capita?
A
- The value of total GDP divided by the total population of a country
7
Q
What is GNP?
A
- The market value of all products produced in an annum by the labour and property supplied by the citizens of one country
8
Q
What is GNI?
A
- The sum of value added by all producers who reside in a nation, plus net overseas interest payments and dividends.
9
Q
What is purchasing power parity?
A
- Theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent, according to each currency’s purchasing power
10
Q
What are the limitations of using GDP to compare living standards?
A
- GDP does not give an indication of distribution of income
- GDP does not account for purchasing power
- GDP does not account for hidden economies
- GDP does not account for welfare
11
Q
What is inflation?
A
- The sustained rise in the general price level over time.
12
Q
What is deflation?
A
- The sustained fall in the general price level over time.
13
Q
What is disinflation?
A
- A fall in the rate of inflation.
14
Q
What is Consumer Price Index?
A
- Used to calculate inflation
- Family expenditure survey used
- Weighted basket of goods
- Measures average price change of goods
- Updated annually
- Uses a base year
15
Q
What are the limitations of CPI when measuring inflation?
A
- Basket of goods is only representative of the average household.
- Different demographics have different spending patterns
- CPI is slow to respond to new goods and services.
16
Q
What is the Retail Price Index?
A
- Alternative measure of inflation
- RPI includes housing costs.
- Excludes top 4 percent and bottom 4 percent of earners.
17
Q
What are the limitations of RPI?
A
- RPI does not consider the fact that when prices rise, people will switch to a substitute good.
18
Q
What are the causes of inflation?
A
- Demand Pull
- Cost Push
19
Q
What is demand-pull inflation?
A
- Increased demand with limited supply so producers increase prices.
20
Q
What are the triggers of demand-pull inflation?
A
- Depreciation in the exchange rate.
- Lower taxes or increased government spending
- Lower interest rates
- High growth
21
Q
What is cost-push inflation?
A
- Occurs when firms face rising costs
22
Q
What are the triggers of cost-push inflation?
A
- Increase in raw materials costs.
- Expectations of inflation
- Indirect taxes
- Depreciation in the exchange rate
- Monopolies
23
Q
What are the effects of inflation on consumers?
A
- Low and fixed incomes are hardest hit by inflation.
- Value of loans will fall
24
Q
What are the effects of inflation on firms?
A
- Investing is more attractive as lower interest rates.
- Workers might demand higher wages.
- Firms may be less price competitive on a global scale.
- Unpredictable inflation will reduce business confidence.
25
What are the effects of inflation on the government?
* Increased welfare payments
26
What are the effects of inflation workers?
* Real incomes fall with inflation
* Wage cuts.
27
What are the measures of unemployment?
* The Claimant Count
* Labour force Survey
28
What is the claimant count?
* The number of people claiming unemployment benefit such as job seeker’s allowance.
29
What are the issues with Claimant Count?
* Does not account for those who do not claim the benefit.
30
What is the Labour Force Survey?
* Been out of work for 4 weeks
* Able and willing to start work within 2 weeks
* Workers should be available for 1 hour per week. Part time unemployment is included.
31
Who are unemployed?
* Those able and willing to work but are not employed.
* They are actively seeking work and usually looking to start within the next two weeks.
32
Who are underemployed?
* Those who have a job, but their labour is not used to its full productive potential.
* Those who are in part-time work but are looking for more hours.
33
What are the effects of changed in employment on consumers?
* If consumers are unemployed, they have less disposable income.
* Psychological impacts of losing a job
34
What are the effects of changed in employment on firms?
* Increased unemployment means wages decrease.
* Consumer spending falls with high levels of unemployment.
35
What are the effects of changed in employment on workers?
* Fall in wages
36
What are the effects of changed in employment on the government?
* Increased spending on JSA
* Decreased tax revenue
37
What are the effects of changed in employment on society?
* Increased crime rates
38
Who are economically inactive?
* Those who are not actively seeking a job.
39
What are the causes of unemployment?
* Structural
* Frictional
* Seasonal
* Demand deficient
* Real wage inflexibility
40
What is structural unemployment?
* Long term decline in demand for the goods and services in an economy
41
What is frictional unemployment?
* Time between leaving a job and looking for another job.
42
What is seasonal unemployment?
* Certain times of the year.
43
What is demand deficient unemployment?
* Lack of demand for goods or services, usually during a recession.
44
What is real wage inflexibility?
Real wage unemployment occurs when wages are set above the equilibrium level causing the supply of labour to be greater than demand.
45
How does migration affect unemployment?
* Supply of labour increases
* Bring high quality skills
* Brings down lowest paid wages
