Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics Edexcel A Level > 2.1 Measures of Economic Performance > Flashcards

2.1 Measures of Economic Performance Flashcards

1
Q

Define nominal value

A

The value of an economic variable based on current prices, taking no account of changing prices of inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define real value

A

The value of an economic variable, taking account of inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How do you calculate a price index to account for inflation? (Regarding GDP)

A

(Nominal GDP/ Real GDP) x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How do you calculate a percentage change of an economic variable?

A

(Change/ Original) x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define the term index number

A

A device for comparing the value of a variable in one period or location with a base observation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define potential economic growth

A

An expansion in the productive capacity of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define gross domestic product

A

The total value of goods and services produced in an economy in a given time period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What 3 factors of GDP are all assumed to equal the same thing?

A

1) Total value of goods + services produced
2) Total expenditure
3) Total income earnt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Define gross national income (formally known as GNP)

A

Domestic GDP plus net income from abroad

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define actual economic growth

A

The rate of growth of GDP in a period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why is actual growth not always equal to potential growth?

A

Because the economy is not always operating at full capacity, due to most economies going through the business cycle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Define the term business cycle

A

A phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern of booms, downturns, busts and recoveries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When is it preferred to use GNI instead of GDP, and why?

A

When measuring standard of living because it reflects the incomes of the residents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define GNI per capita

A

The average level of GNI per head of the population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the 4 main limitations of using GDP or GNI to compare living standards over time?

A

1) Inequality in income distributions
2) The informal sector and accuracy of data
3) Exchange rate problems
4) Social indicators

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Explain the issues of the informal sector and accuracy of data

A
  • Given some data collection agencies may be more reliable than others, not all international data may be reliable
  • Especially in the informal sector, many transactions go unrecorded, so will not be included in GNI data
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Explain the issues of exchange rates when using GDP or GNI

A

GNP and GNI tends to be turned into US dollars for international comparison.
However, the exchange rates may not be a reliable indicator of purchasing power of incomes, given exchange rates can either be affected by govt policies or by prices of internationally traded goods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How have the UN combatted the issue of exchange rates when using GDP or GNI?

A

By adjusting GNI figures to the purchasing power parity of each country

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is purchasing power parity?

A

A theory that measures prices at different locations using a common good to contrast the real purchasing power between different currencies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Describe the issue of a lack of social indicators in GNI or GDP

A

GNI and GDP refer to the value of resources in an economy, but do not consider education levels, access to healthcare etc, which are social indicators of standard of living

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Describe the trends of rates of growth of countries between 1950 and 1960

A

Countries in North America, Western Europe and Japan were early developers, whilst Sub-Saharan Africa and Latin America were later in development

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How does the trends of rate of growth in countries change between 1960 and 1980?

A

The gap between countries begin to widen, where Nepal and India had very low growth.
Latin America had diverse growth, whilst East Asian countries like Korea and Malaysia began to catch up to early developers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Describe the general trends of growth of countries between 1990s and 2012

A

International growth on average was low due to the financial crash of 2008.
Sub-Saharan Africa had very low growth, whilst China experienced nearly 10% growth per annum.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

How may gross national happiness be calculated? (2)

A
  • By adjusting GNI to only include variables that positively contribute to economic wellbeing
  • To ask people whether they are happy or not
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How did the UK try and measure levels of happiness in 2010?

A

The ONS launched its ‘Measuring National Wellbeing Programme’ in 2010.
It used indicators such as personal wellbeing, relationships, health, education and the environment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Is there likely to be a relationship between real incomes and happiness?

A

The relationship is positive, but not likely to be very close, given that people’s subjective perception of happiness will be related to a whole host of different factors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

How is inflation in the UK calculated?

A

Using the consumer price index (CPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Define the consumer price index

A

A measure of the general level of prices in the UK, the rate of change of which has been used as the government’s target of inflation since Jan 2004.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

How is CPI calculated?

A

It measures the general level of prices, not the rate of change of prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is an alternative measure of the rate of inflation that is not CPI?

A

The retail price index (RPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Describe what the RPI is and how it is different from the CPI

A

The RPI measures the average level of prices in the UK.
The RPI excludes interest on mortgage repayments, as well as pensioner households and the highest income earners, whereas CPI does not.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is the target rate of inflation in the UK?

A

2% +/- 1%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is a common issue with CPI and RPI, and how is this combatted?

A

Products may have a fixed weight in the index.
If prices of these products fall or rise rapidly, consumers will buy a substitute, however the weights will stay constant.
Thus, the index may not reflex the cost of a typical basket of goods.
They combat this by updating weightings each month.

34
Q

What is the difference between deflation and disinflation?

A

Deflation is a fall in the average level of prices.

Disinflation is a fall in the rate of inflation.

35
Q

Why is deflation bad for the economy?

A

If prices are falling, consumers may hold off purchases if they expect prices to continue to fall, creating an even deeper recession

36
Q

Describe the trend of inflation in the UK between the 1950s and early 1960s

A

Between 1951-52, the Korean War generated inflation, however this period is typified by a low rate of inflation

37
Q

Define inflation

A

The rate of increase in the average price level in an economy

38
Q

What occurred during the 1970s which led to price instability?

A
  • Oil prices rose dramatically between 1973-74 and 1979-80
  • UK abandoned the fixed exchange rate system under which the government was dedicated to maintain the value of the pound against the US dollar
39
Q

After what year did controlling inflation become a major focus of macroeconomic policy?

A

1976

40
Q

What does it mean when people are in employment?

A

They are either working for firms or other organisations, or self employed

41
Q

Define the term economically inactive

A

Those people of a working age who are not looking for work

42
Q

Define the term discouraged workers

A

People who have been unable to find work and are now not looking for work

43
Q

Define the workforce

A

People who are economically active, either in employment or unemployed

44
Q

Define the term unemployed

A

Those not in work, but are able, available and willing to work

45
Q

Define the term full employment

A

A situation where people who are economically active in the workforce and are willing and able to find work are able to find full employment

46
Q

Why does full employment not mean zero employment?

A

Because there will always be some frictional unemployment in a society

47
Q

Historically, how has unemployment been measured in the UK?

A

The claimant count.

This is the number of people claiming the jobseeker’s allowance each month

48
Q

How does someone claim a jobseeker’s allowance? (3)

A
  • Must prove they are able, available and willing to work
  • Must be able to start within a fortnight
  • Must have searched for jobs in the last four weeks
49
Q

What are the problems of using the claimant count? (2)

A
  • It doesn’t include people who would like to find work, but are not eligible to make a claim
  • People wanting to claim benefits may lie about actively seeking for, and being able to work
50
Q

What is now the preferred unemployment measure in the UK?

A

The ILO unemployment rate, which is based on the data provided by the ‘UK Labour Force Survey’
It measure the % of the workforce who are without jobs, but are available for work, willing to work and are looking for work.

51
Q

Give examples of the type of people who are excluded from the claimant count.

A
  • People returning to the workforce after childbirth

- People who are on government training schemes

52
Q

What are the 2 problems associated with using the ILO unemployment rate?

A
  • It extrapolates data to try and give an overall picture, but it may not be fully representative
  • It doesn’t tell you how many people are unemployed because of the wages being not desirable
53
Q

What is the problem of measuring unemployment in developing countries?

A

In countries where there is no social security system, the unemployed would have no incentive to register as unemployed.

54
Q

What is underemployment?

A

Those working less hours than desired or at a lower skill level than they are able

55
Q

Define frictional unemployment

A

Unemployment associated with job search, where people are usually between jobs

56
Q

What are the benefits of some frictional unemployment?

A

Where some sectors are expanding, and others are declining, it enables the transfer of workers from one sector to another.

57
Q

What is structural unemployment? What are the problems with it?

A

Unemployment arising because of changes in the pattern of economic activity within an economy.
It usually leads to long-term unemployment as workers have an immobility of skills

58
Q

Define cyclical unemployment

A

Unemployment that arises during the downturn of the economic cycle, such as a recession

59
Q

Define demand-deficient unemployment

A

Unemployment that arises because of a deficiency for aggregate demand in the economy, so that the equilibrium level of output is below full employment

60
Q

Define seasonal unemployment

A

Unemployment that arises in seasons of the year when demand is relatively low

61
Q

If wages rise above equilibrium what will happen?

A

It may lead to excess supply of labour, and thus unemployment

62
Q

Define voluntary unemployment

A

A situation arising when an individual chooses not to accept a job at the going wage rate

63
Q

What is the significance of migration for employment and unemployment?

A

When the skills provided by migrants are complementary to native workers, then it may lead to an increase in national incomes. However, if their skills are substitutes, it may lead to a decrease in the equilibrium wage.

64
Q

Define involuntary unemployment

A

A situation arising when an individual who would like to accept work at the going wage rate is unable to find employment

65
Q

Define the balance of payments

A

A set of accounts showing the transactions conducted between residents of a country and the rest of the world

66
Q

What are the three categories of the balance of payments?

A

The current account
The capital account
The financial account

67
Q

Describe what the capital account is

A

It involves transactions in fixed assets, mainly involving migrants

68
Q

Describe what the financial account is

A

It records the transactions in financial assets

69
Q

What does the balance of payments always equal and why?

A

0 because any deficit or surplus in the current account or capital accounts will be balanced by the financial account

70
Q

What is the current account comprised of?

A

Balance of trade in goods (net good exported) +
Balance of trade in services (net services exported) +
Net primary income +
Net secondary income (transfer payments)

71
Q

What is meant by current account equilibrium?

A

The flows of money leaving the country= the flows of money entering the country

72
Q

What should the current account deficit not go over?

A

The equivalent of 5% of GDP

73
Q

What is a current account deficit?

A

Outflow of money is greater than the inflow of money.

74
Q

What does the UK’s trade balance usually look like?

A

Overall trade deficit.

Trade deficit in goods outweighs the trade surplus in services.

75
Q

What are the three causes of inflation?

A

Demand-Pull
Cost-Push
Growth of the money supply

76
Q

Explain demand-pull inflation

A

An increase in aggregate demand without an increase in aggregate supply.

77
Q

Explain cost-push inflation

A

Reduction in aggregate supply because of increasing costs of production for firms

78
Q

Explain how growth in the money supply causes inflation

A

If banks increase lending, AD will increase

79
Q

Define activity/participation rate

A

Those in work or unemployed divided by the number of the working age population

80
Q

What is the problem with high levels of inflation? (5)

A
  • Lower real earnings
  • Savings devalued
  • Hurts those on fixed incomes (pensioners)
  • Uncertainty leading to decreased spending and investment
  • Hurts exports

Economics Edexcel A Level (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions