2.1 Measures of ecnomic performance Flashcards
What is inflation
General increase of prices in an economy over a period of time
Deflation
Fall in prices of goods and services over a period of time in an economy
Disinfaltion
Decrease in the rate that prices rise in an ecnomy
How does inflation affect consumers?
- If incomes remain the same then people have less disposible income to spend and standard of living drops
- People in debt can pay off the debt which is now less valueable
- Savers lose out as the money is not as valuable
How does inflation affect firms?
- Goods prices rise means that they are less competitive in global markets, balance of paymenst decrease (X-M)
- Deflation means that people are better of saving so demand decreases
- It is difficult to predict so it makes it hard for firms to plan
4.
How does inflation affect Government
- If they dont change tax rates than they may lose out on real tax revenue as £1 on 100 kilos of sugar is now less than before
- If they dont change tax thresholds they get more tax revenue but tax payers have less dispocible income
How does inflation affect workers?
- If wages dont increase there real wage will decrease and so standard of living decreases
- Deflation can cause workers to lose jobs as there is a lack of demand
Economic growth?
Rate of change of output. Increase in the long term productive potential of an ecnomy.
Shown on PPf or rate of change in GDP
What is GDP?
Measure of output in an economy, indicator of standard of living in economy, easy to compair year on year and country on country
Difference in real and GDP per capita
Total GDP= overall GDP in country
GDP per capita= Total GDP/ people in country
Difference in real GDP and GDP per capita
Real GDP= adjusted to inflation
Nominal GDP= doesnt adjust to inflation
What is Gross National Product(GNP)
GDP + net property income from abroad
Value of goods and services(GDP) produced by all members of the country in and out of the country.
Purchasing power pariaties
How much of your currency gets you. £2 a day in uk isnt enough whereas in kenya it would be fine
What is Gross National Income (GNI)
Value of GDP produced by a country plus net overseas payments
Problems of GDP to measure growth
- Countries are inefficent at collecting data so comparisions can be wrong
- Black market- hidden exchnage of money
- Doesnt take into account home-grown products- farmers eating their own food wont be accounted for
- Error in counting inflation rate makes real GDP wrong
How to calculate national happiness
- real GDP per capita
2.life expectancy
3.having someone to count on
4.perceived freedom to make life choices
5.freedom from corruption
6.generosity
CPI?
Measures increase in price of a basket of goods every month to measure inflation. They change the goods based in how they are used and it is weighted on how much households use the goods or services
Limitations of CPI
- Cant measure every single good sold so wont be 100% correct
- Doesnt included price of housing
3.
RPI
RPI is CPI but includes the cost of housing
Claimant count
\Number of people who claim unemployment benefits like JSA
Unemployed
16-65 who are actively seeking work and havent in 4 weeks but are able to work within 2 weeks
Inactive
People of working age not able to work-> education, injured,heakth issues
The Labour Force Survey (LFS)
Survey a sample of households and asks questions about ecnomic position to class people as employed or unemployed
EV of claimant count and LFS
- Some people are not eligible for benefits but will be considered unemployed
- Not all unemployed people claim benefits
3.People fraudulently claim benefits
Under-employment
- People who want to work more hours9 parttime/0 hour contracts)
- People whos job doesnt reflect there skill, they are too high skilled for their job
Increase in activity
Decrease size of labour force and so ppf decreases and GDP slows/decreases
Frictional unemployment
Unemployment due to changing jobs
e.g. People in eductaion after getting a degree newly in the market
Structurual unemployment
As a market fails those employees dont have skills for other markets
Cyclical unemployment
Unemployment during different parts of the trade cycle recession means unemployment increases
Seansonal unemployment
People are only hired during different seasons
Real wage infelxibility
Real wages above equilbirum wages so their is an excess supply of labour e.g. minium wage
Affects of migration
- Increase employment means growth as they have more employees
- Lower wages as supply of labour increases and migrants are willing to work for lower wages so there is more competition for jobs
Impacts of unemployment on workers
- People who lose jobs have a loss of income and standard of living drops
- Stigma of being unemployed leads to stress and anxiety
- Long-term unnemployment (12 months+) means workers lose skill and find it harder to get a job
4.Lower job security decreases productivity
Impacts of unemployment on firms
- Decrease in demand for goods so profits fall
- Long term unemployment means skill decrease so firms have less options for employment
- Offer lower wages as people need jobs
Impacts of unemployment on consumers
- Shops shut down so they have less choice
- Less to spend
3.Firms may lower prices so standard of living increases
Impacts of unemployment on government
1.Fall in tax revenue and increase in spneding on unemployment so opportunity costs and a defict increase
Impacts of unemployment on society
- Increase in crime
2.National output decreases
3 components of balance of payments
- Current account
2.Capital account
3.Financial account
What is balance of payments
Recording of all financial transactions over a period of time within and out of a country
2 parts of current account
- Trade in goods- physical goods
- Trade in servcies- not tangable services
Income and wage transfers
Profits made into a country abroad going back into the host country. Uk company producing in china sending profits back to the uk
Primary income
Profit from uk residents from abroad
Secondary income
Overseas aid or investment
4 Government objectives
- Low unemployment (2%)
- Low and stable inflation (2%)
3.Balance of payments equilibrium
4.High ecnomic growth
