2 - Measures Of Economic Performance Part 1 Flashcards
What are the measures of economic performance?
Unemployment Numbers Rate of inflation Rate of economic growth Government budget Degree of inequality Quality of environment Balance of payment positions on current account
What is an index number and how do you use it?
It measures movements in variables that cannot be directly measured
Choose a base year and convert it to 100 in the index
What is the equation for index number?
Index number =
Raw number in period / Raw number in base period x 100
What are nominal values?
Measurement made using prices that are current at the time of transaction
These will always overstate growth over time
What are real values?
Quantities produced after removing the effects of price changes (inflation)
Better for economists
How do you convert nominal measurement to real / what is the equation for price index?
100 x nominal GDP / real GDP = Price index
What is long run economic growth?
Expansion of the economy’s capacity to produce goods and services
What is short run economic growth?
Increase in real GDP over time
What is the equation for GPD per capita?
GDP per capita = GDP in a period / number of people in country
What is GDP?
Gross domestic product - total output of an economy during a period of time
Calculated by working out the Average of
The total value added produced by firms in domestic economy
Adding up total expenditures in the period
Total amount of income earned
What is GNI?
Gross national income - income flows between countries
Used to be gross national product
Net income from abroad
Overseas investment are added and people sending money back home is subtracted
Why do we measure GDP?
Indicates living standards
Used to make and evaluate the effectiveness of policy decisions
Used to determine amounts of aid, contributions and debt a country can afford
What is the equation for growth rate?
(Current GDP - Original GDP) / Original GDP X 100
What is GNI per capita and why is it important?
Different countries have different populations which needs to be taken into account
Calculates average GNI per head of population
What is power purchasing parity?
An assumption that exchange rates are in equilibrium and foreign agents should have the same purchasing power
Provides an alternative to compare GDP using exchange rates
Takes into account cost of living
