2.1 Measures Of Economic Perfomance Flashcards
What is economic growth?
The rate of change of output, indicating an increase in the long-term productive potential of a country.
How is economic growth typically measured?
By the percentage change in real GDP per annum.
What does Gross Domestic Product (GDP) represent?
The total value of goods and services produced in a country within a year.
What is GDP per capita?
Total GDP divided by the number of people in a country.
What is the difference between real GDP and nominal GDP?
Real GDP strips out the effects of inflation, while nominal GDP does not.
What does Gross National Income (GNI) include?
The value of goods and services produced by a country plus net overseas interest payments and dividends.
What is Gross National Product (GNP)?
The value of goods and services produced by citizens of a country, both domestically and overseas.
Why is it important to use real, per capita figures in economic comparisons?
To accurately assess living standards and strip out the effects of inflation.
What do Purchasing Power Parities (PPP) compare?
How much a typical basket of goods in one country costs compared to another country.
What are some problems with using GDP to compare standard of living?
Inaccuracy of data, inequalities in income distribution, quality of goods and services, and spending types.
What are the six key factors affecting national happiness according to the UN happiness report?
- Real GDP per capita
- Health
- Life expectancy
- Having someone to count on
- Perceived freedom to make life choices
- Freedom from corruption
- Generosity
What is inflation?
The general increase of prices in the economy, eroding the purchasing power of money.
What is deflation?
The fall of prices, indicating a slowdown in economic growth.
What is disinflation?
A reduction in the rate of inflation, where prices are still rising but not as quickly.
How is the Consumer Price Index (CPI) calculated?
By collecting prices on 710 goods and services from various retailers and updating them monthly.
What are some limitations of the CPI?
It does not account for every single good sold, varies by household spending, and excludes housing prices.
What does the Retail Price Index (RPI) include that the CPI does not?
Housing costs such as mortgage and interest payments, and council tax.
Fill in the blank: An increase in GDP may not increase living standards if it is due to a growth in income of just one _______.
[group of people]
What is the Easterlin Paradox?
The finding that happiness and income are positively related only at low income levels.
What does the Measuring National Wellbeing report measure?
How lives are improving based on self-reported health, relationship status, and employment status.
What is the significance of using a base year in inflation calculations?
It allows for comparisons of nominal figures to real figures over time.
True or False: Higher levels of income are always associated with increases in happiness.
False
What does RPI stand for?
Retail Price Index
RPI is a measure of inflation that includes housing costs and is typically higher than the CPI.
What are the key differences between RPI and CPI?
- RPI includes housing costs
- CPI does not include housing costs
- CPI accounts for consumer behavior changes when prices rise
- RPI excludes the top 4% of income earners and low income pensioners
- CPI covers all households and all incomes
RPI is considered less accurate and has lost its national statistic status.
What is demand-pull inflation?
Inflation caused by an increase in aggregate demand
This type of inflation occurs when the demand for goods and services exceeds supply.
What is cost-push inflation?
Inflation caused by a decrease in aggregate supply
This happens when production costs rise, leading businesses to increase prices.
What is one cause of inflation related to the money supply?
Too much money in the economy
Increased government borrowing or printing more money can contribute to this.
How does inflation affect consumers?
- Reduced purchasing power if incomes do not rise
- Debt repayment becomes cheaper for borrowers
- Saved money loses value
- Psychological effects may lead to decreased spending
Inflation can create a feeling of being less well-off, even if actual income rises.
What are the effects of inflation on firms?
- Higher prices make goods less competitive
- Can lead to reduced exports
- Difficulty in planning due to unpredictability
Inflation can increase costs for firms, which may lead to changes in pricing and menu adjustments.
What is the Claimant Count?
The number of people receiving unemployment benefits
This measure provides a snapshot of claimants on a specific day each month.
What is the International Labour Organisation (ILO) definition of unemployment?
Those of working age who are without work, able to work, seeking work, and have actively sought work in the last 4 weeks
The ILO also classifies individuals as employed or economically inactive.
What is frictional unemployment?
Unemployment due to people moving between jobs
This type of unemployment is typically short-term.
What is structural unemployment?
Long-term unemployment due to a decline in demand in a specific industry
It often requires retraining for affected workers.
What is cyclical unemployment?
Unemployment caused by a general lack of demand for goods and services
This is often associated with recessions.
What is underemployment?
Individuals working part-time or in jobs that do not match their skills
Underemployment is not counted in official unemployment statistics.
What is the significance of changes in activity rates?
- Increases in inactivity decrease the labor force
- Decreases in inactivity may lead to more unemployment if jobs are unavailable
Changes can impact GDP and tax revenues.
What impact does migration have on employment?
- Increases job availability
- Can lead to lower wages for low-skilled jobs
Immigrants often take lower-skilled jobs and contribute to job creation through their spending.
What are the psychological effects of unemployment on workers?
- Loss of income
- Stigma and feelings of degradation
- Increased stress and potential for mental health issues
Long-term unemployment can lead to severe personal consequences.
What is the primary impact of unemployment on workers?
Loss of income, decline in living standards, stigma of unemployment, stress, marital breakdown, suicide, physical illness
Long-term unemployment can lead to skill loss and increased difficulty in finding new jobs.
How does long-term unemployment affect job security for those currently employed?
Lower job security, fear of redundancy, potential fall in wages
Firms may find it easier to replace employees who complain about pay due to a larger pool of unemployed workers.
What are the consequences of unemployment for firms?
Decrease in demand for goods, loss of skills in workforce, ability to offer low wages
Firms may experience a smaller pool of skilled labor due to long-term unemployment.
How does high unemployment affect consumers in those areas?
Loss of local shopping options, decreased quality of goods, reduced available spending for unemployed consumers
Firms may lower prices to stimulate demand.
What financial effects does unemployment have on the government?
Fall in tax revenues, increased welfare spending, potential increase in budget deficit, need for higher taxation or reduced public spending
Opportunity costs arise as funds could be better spent elsewhere.
What societal issues are linked to rising unemployment?
Social deprivation, increased crime rates, social dislocation, declining health, lower life expectancy
High unemployment areas often see reduced demand for local goods and services.
What is the balance of payments?
A record of all financial dealings between a country and other countries over time
It includes imports and exports of goods and services.
What are the main components of the balance of payments?
- Current account
- Capital and financial account
The current account records payments for goods and services, while capital and financial account records flows of money associated with saving and investment.
What does the current account include?
- Trade in goods
- Trade in services
- Income and current transfers
Trade in goods includes visibles and invisibles, while income and current transfers can be primary or secondary.
Define a current account surplus.
When exports are greater than imports, resulting in a positive current balance
This indicates a favorable trade position for the country.
Define a current account deficit.
When imports are greater than exports, resulting in a negative current balance
This indicates that a country is spending more on foreign trade than it is earning.
What are the four main macroeconomic objectives of governments?
- Low unemployment
- Low and stable inflation
- Economic growth at a similar rate to other economies
- Balance of payment equilibrium
Achieving these objectives can be interconnected and sometimes conflicting.
How does high economic growth typically affect the current account?
It tends to lead to a current account deficit due to increased imports from higher demand
Conversely, high unemployment may improve the current account deficit.
List the four key ways that have led to globalization.
- Increased international trade
- Ownership of assets across borders
- Migration between countries
- Rapid technology sharing
These factors have made economies more interdependent.
True or False: All current balances should theoretically add up to zero.
True
This is based on the principle that what one country exports, another imports.
