2.1 Measures of Economic Growth Flashcards
Define GDP
The value of total output of an economy
Define economic growth
The % change in GDP over a time period
How to calculate nominal economic growth
% change in GDP over time (new-old/old)
How to calculate real economic growth
%change in GDP over time (nominal) - rate of inflation e.g 20% - 1% inflation = 19%
Name 4 stages in the economic cycle
Boom
Recession
Slump
Recovery
What to use in evaluation for ten markers?
MOSH
magnitude, other factors, short/longterm, however
How to calculate GDP per capita
GDP/population size
4 ways to measure economic performance
Economic growth,
Unemployment,
Inflation,
Trade (BoP)
Name 2 things that happen in a recession and a boom
Recession: unemployment, homelessness, low interest rate
Boom: wage growth, more construction, tax revenue increases
What causes increase in value of goods?
Innovation
e.g country goes from producing cheap plastic toys to smartphones
What causes an increase in volume of goods and services produced?
Increase in productivity (e.g going from producing 100 toys to 150 toys)
What is Gross National Income (GNI)?
GDP + net income from abroad
net income means outflows and inflows are included
Name 2 advantages of GDP/GNI
- Widely understood
- Established, lots of available data
- Can be compared between countries as internationally recognised
What is Purchasing Power Parity?
Comparing how much of items can be bought in one country compared to another (i.e comparing the value of currency)
Why is PPP more accurate than GDP to compare living standards of different countries?
Takes living standards into account
Name 5 limitations of GDP
- Doesn’t include informal economy (e.g DIY)
- Doesn’t include non-declared goods (e.g black market drugs)
- Doesn’t account for distribution of wealth
- Doesn’t account for environmental impact (bad for welfare)
- Includes goods produced even if not sold
Define Gross National Happiness
A way of measuring development in a country through happiness
What is real GNI at PPP per capita?
Gross national income converted internationally, adjusted for inflation, per person
What is the Human Development Index? (HDI)
Gives a score based on life expectancy, education, and standard of living, to rank and compare countries
Name 2 advantages and disadvantages of HDI
+ Easy to compare
+ Looks at various factors, not just income
- Doesn’t consider distribution of income
- Doesn’t consider political stability/culture
How to calculate revenue
Sales x price
Define inflation
Rate of increase in the general price level in an economy (e.g prices higher than last year)
Define deflation
The rate of decrease in General price level (prices lower than last year)
Define disinflation
A fall in the rate of inflation (e.g this year is 1%, last year was 2%)
Define Consumer Price Index (CPI)
List of goods and services from 20000 shops, measured by price year on year to calculate inflation (change in GPL)
What are the index numbers in CPI?
Base year (one which others compared to) - INDEX 100,
Weighted index - index no. where relative importance (% spending) is taken into account
How do you calculate the final price index of the CPI basket?
Total / no. of products
How do you calculate a weighted index? (CPI)
New value / base value x 100
How do you calculate the final price index of a weighted index?
total / sum of weights
What are 3 limitations of CPI to measure inflation?
- Not fully representative(can’t include every good)
- Doesn’t measure change in inflation because of better quality of output
- RPI was used historically, so CPI cannot be compared with older years
What is Retail Price Index (RPI)?
A price index that includes mortgage interest payments and council tax, and excludes pensioners and highest earners.
What is a disadvantage of RPI?
Not internationally comparable
How would you calculate inflation from an index if neither year is a base year?
Calculate percentage change
What is demand-pull inflation?
Anything that increased AD can cause inflation
What is cost-push inflation?
Anything that decreases AS can cause inflation
Name 2 effects of inflation on consumers
- Reduced purchasing power (less spending)
- Uncertainty (may try to stock up on items/save money)
Name 2 impacts of inflation on firms
- Less internationally competitive
- Uncertainty makes future planning hard
Name an impact of inflation rise on workers
If on fixed income, will be worse off.
Name an impact of inflation of governments
Makes them look like they cannot control economy - less public confidence
Define ‘employed’
People over 16 who did more than 1hr of paid work a week
Define unemployed
People over 16 without a job who have actively sought work in the last 4 weeks, and can work within the next two weeks
Define inactive
People over 16 not in employment who haven’t sought work or wouldn’t be able to work in the next two weeks
What is the active labour force?
Employed workers + unemployed workers
How to calculate unemployment rate
unemployment / active labour force x 100
How to calculate employment rate
(employed / population aged 16-66) x 100
What is the difference between unemployment level and unemployment rate?
Level - total number
Rate - % in economically active pop
Define structural unemployment
Caused by mismatch of skills of workers and skills firms want (decline in industry)
Define frictional unemployment
Caused by time it takes to find a new job once one is lost
Define seasonal unemployment
When people are unemployed at certain times of year e.g a ski instructor
Define voluntary unemployment
When someone chooses not to take a job at the current wage rate (e.g they think it is below their skill level)
Define involuntary unemployment
When someone is willing and able to work but cannot find a job
Define demand deficient/cyclical unemployment
Unemployment caused by the economic cycle e.g during a recession
Define real wage inflexibility unemployment
Unemployment caused by wages not falling to market clearing rate/equilibrium
Define youth unemployment
unemployment among people under 24
Define underemployment
Working part-time when wanting to work full time OR in a less-skilled profession than you are qualified for
Name three benefits in the UK
Universal Credit
New Style Job Seeker’s Allowance
New Style Employment and Support allowance
Define Claimant Count
Measures the number of people claiming JSA/unemployment benefits
- Must be 18-65 and available and looking for parttime work
What is the ILO?
International Labour Organisation : Labour force survey of those 16+ seeking work
- International standard for comparison across countries
Why may ILO > Claimant count? (3 reasons)
- Some may be looking for work and not claiming benefits
- Some may be looking for part time work (not incl. in CC)
- ILO is >16 , CC is 18-65
Name 2 ways an increase in unemployment affects consumers
- Less disposable income so less spending
- Standards of living decrease
Name a way an increase in unemployment affects firms/producers
Less demand as spending down, so less income
Name 2 ways an increase in unemployment affects workers
Uncertainty around losing job
Hysterisis: loss of job skills carried on into future
Name 3 ways an increase in unemployment affects government
Less tax revenue
Higher welfare spending e.g JSA
Less public confidence
Name 2 ways an increase in unemployment affects society
More crime
Worse mental health
How does a reduction in inactive population affect households?
More stress - housework needs to be done, children taken care of etc
Name 3 advantages of net inward migration
- Increase in labour force: skills gap filled
- Can reduce pressure on public services if migrants employed in NHS etc
- Increase in consumer spending
Name 3 disadvantages of net inward migration
- Can decrease wages in low-paid jobs
- Can ‘displace’ UK workers
- Can put pressure on public services e.g NHS, schools
Define Balance of payments
A financial record of all the trade between one country and the rest of the world
Are imports a debit (negative) or credit (positive) item in the Balance of Payments?
Debit
- giving money to other countries for items
Are exports a debit (negative) or credit (positive)item in the Balance of Payments?
Credit
- other countries pay UK for items
What are the sections included in the current account?
- NET (!) trade in goods
- NET (!) trade in services
- Investment income (net current income)
- Transfer income (net current transefers
What makes up the balance of trade
NET trade in goods and net trade in services
Name a deficit country and a surplus country (BoP)
Deficit: Uk, USA, France
Surplus: China, Germany, Singapore
What affect does a current account deficit have on currency?
Makes it weaner internationally
- imports create supply of £, and inc. in supply of £ decreases exchange rate$
What effect does a strong pound have on imports and exports?
SPICED
imports cheaper
exports more expensive
What will the current account look like in a boom/recession?
Boom: deficit
Recession: balance/surplus
What effect does unemployment have on current account balance?
full employment (3-4% unemployment) = deficit high unemployment = balance/surplus
What effect does inflation have on current account balance?
high relative inflation - deficit
cheaper substitutes from abroad so imports increase, price of exports less competitive so less exports
How does international trade make countries interdependent, and what effect does this have?
Rely on each other for income, goods and services
+ Makes countries cooperate
- Developing countries cannot compete
- If one country is in a crisis, others may be affected
Name 5 causes of a current account deficit
- Exchange rate (strong pound)
- High inflation rates relative to other countries
- High wage cost relative to other countries
- Economic cycle (boom)
- Difference in quality of goods
Name 5 causes of a current account surplus
- Exchange rate (weak currency)
- Low rates of inflation compared to other countries
- Low wage costs relative to other countries
- Economic cycle (recession)
- Difference in quality of goods
