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A Level Economics Theme 2 > 2.1 Measures of economic performance > Flashcards

2.1 Measures of economic performance Flashcards

1
Q

Big Mac Index

A

Measures PPP between diff countries.
Average national Big Mac prices in dollars allows goods to be informally compared.

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2
Q

Constant prices

A

Data has been inflation adjusted

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3
Q

Economic development

A

LR improvements in measures of income per capita, education, health, poverty, inequality

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4
Q

Economic growth

A

SR: increase in real GDP
LR: increase in country’s productive capacity

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5
Q

GNI

A

Gross national income - income generated from resources owned by inhabitants and businesses of a country

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6
Q

GDP

A

Gross domestic product - total value of output of G/S produced in a country

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7
Q

GDP per capita

A

GDP per person

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8
Q

HDI

A

Human Development Index - compares levels of development in countries (life expectancy)

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9
Q

National income

A

EQUALS GDP - total income earned by all FOP in economy in given time frame

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10
Q

Nominal GDP

A

National income unadjusted for the effects of inflation

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11
Q

Purchasing power

A

buying power of a unit of currency.
inversely related to rate of inflation

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12
Q

PPP

A

Purchasing power parity - assumption that exchange rates are in equilibrium

takes living costs into account

how many units of one country’s currency are needed to buy the same basket of goods and
services as can be bought with a given amount of another currency

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13
Q

DIFFICULTIES IN MEASURING GDP

A

unrecorded/illegal transactions
quality of life ignored
subsistence production (DIY) ignored
distribution of income not considered
data collection may have errors
value of leisure ignored
difficult to measure value of innovation

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14
Q

CPI

A

Consumer price index - weighted basket of G/S based upon importance excludes mortgage interest repayments
Basket of 700 G/S updated each year

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15
Q

Problems with CPI

A

only average families: no pensioners, students
people have different spending patterns
tastes and preferences change over time and CPI slow to react
ignores regional differences in living costs
ignores improvements in quality of goods (which may cause increase in price of good)
not fully representative
price fluctuations of certain goods

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16
Q

Cyclical unemployment

A

caused by low levels of aggregate demand,
reducing the demand for labour across many industries

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17
Q

Disguised unemployment

A

Labour force left without work or in redundant manner where worker productivity is essentially zero

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18
Q

Economically active

A

unemployed and actively seeking employment

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19
Q

Economically inactive

A

working age but neither in work or actively seeking word

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20
Q

Frictional unemployment

A

moving between jobs.

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21
Q

Seasonal unemployment

A

unemployed at particular times in the year when demand for labour is lower than usual

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22
Q

Structural unemployment

A

decline in industry which leaves people unemployed because they do not have skills for growing industries

demand for labour is less than its supply

e.g. regional, sectoral, technological

23
Q

Under-employment

A

willing to supply more hours than employer is offering

over qualified for a job

24
Q

Unemployment trap

A

prospect of the loss of unemployment benefits dissuades those without work from taking a new job

25
Q

LFS

A

Labour Force Survey - survey of 60k random households to find out their employment status

ILO international so allows comparisons between different countries

26
Q

Problems with LFS

A

Only 60k households - sampling errors
Costly and time consuming
Biased survey
Outdated information (time lag when findings are published)
Not representative

27
Q

Claimant Count

A

number of people claiming unemployment related benefits JSA

28
Q

Problems with claimant count

A

People may work and claim JSA
Pride issues - some may not wish to claim JSA
Not eligible - you need to over 18
Underemployment ignored

29
Q

BOP

A

Balance of payments - record of all financial transactions between economy and rest of world

30
Q

Capital account

A

Flows of money associated with savings, investment, speculation and currency stabilisation

31
Q

Current account

A

Difference between money going in and out of economy

32
Q

Remittances

A

sending money to people in another country

33
Q

Primary income

A

citizens net income from abroad (returns on FOP)

34
Q

Secondary income

A

net transfers abroad (one-sided, aid)

35
Q

Issues with current account deficit

A

loss of AD, slower rate of real GDP growth, reduced living standards
currency weakness, higher inflation
may show lack of international competitiveness

36
Q

Causes of current account deficit

A

Poor price competitiveness: higher relative inflation compared to other countries, low levels of investment and R+D
Strong exchange rate
Recession in trading partner, cuts value of exports
Booming domestic economy - need to import raw materials from abroad

37
Q

Explain effect of a high consumer confidence level

A

Positive wealth effect
Less incentive to save, more incentive to spend
Consumption is a major component of AD in UK around 60% causes big increase in AD
Less leakages and faster rate of growth due to multiplier effect
However, demand pull inflation occurs
AS must increase to have sustainable and stable growth rate

38
Q

Low interest rate effect

A

Cost of borrowing low
Cheaper to borrow, Reward for saving is low
Firms encouraged to invest
Investment is a direct component of AD
Diagram
In addition, high investment will cause increase in AS
Productivity likely to increase
Investment is also injection to Circular flow model
Multiplier effect large, high growth rate.

However, too much investment can lead to automation, workers replaced by machines, unemployment rises, lower confidence and AD decreases

39
Q

effects of increased education training and healthcare

A

increase in skills and productivity
occupational mobility increases
higher employability
increase in LRAS
lower unemployment = higher household income
higher consumption
higher AD

white collar unemployment - overqualified

40
Q

Problems with high econ growth

A

Inflation: reduces international competitiveness, lowers purchasing power cost of living increases standard of living goes down HOWEVER growth due to shift in PPF causes LRAS increase and inflation rate decreases

Inequality: higher investment (accelerator effect), rich get more opportunity to invest, workers replaced by machines (automation), widen distribution of income and wealth, poverty increase, low econ development, HOWEVER high growth = lower unemployment, more household income

41
Q

Causes of econ growth

A

Higher real wages
Tax cuts
Increased gov spending
Lower interest rates
Increased investment
Higher labour productivity
Discovering raw materials
Increased labour force (immigration)
Improved technology

42
Q

High unemployment cause

A

Low incentive to work: high income tax, generous welfare system, low OC of not working, less motivation to actively seek job, poor infrastructure and transport links can cause geographical immobility
HOWEVER low minimum wage will cause firms to hire more workers whereas high minimum wage will cause workers to not be interested

43
Q

Negatives of high unemployment

A

Budget deficit: less tax revenue from income tax, more benefits to unemployed, GS>T, fewer funds to spend on infrastructure, high national debt DEPENDS ON existing debt situation may be in surplus already (GERMANY) MAY force an increase in income tax rate to compensate for loss of tax revenue

Poor growth: less G+S produced, less household income, less C, AD shiftinwards, AS shifts inwards, poor econ development, HOWEVER automation may ean more G+S are being produced despite high unemployment, production could be exported causing increase in AD

Deskilled workforce, retraining cost for gov, social cost (more crime), more money needed on social services, poverty, high inequality

44
Q

Positives of high unemployment

A

Wider pool of workers available
No need to offer high wage
More productive workers can be chosen
Lower COP, increase in AS, decrease in PL, lower inflation
LR increase in international competitiveness
HOWEVER, low skills and deforced workforce likely to be less productive. Higher average cost per unit. Not taking advantage of economies of scale

Short term unemployment not as bad, opportunity to learn and update skills, increase long run productivity, HOWEVER this is provided training is available, self funded or gov?

Low unemployment better than full employment: no spare capacity, 3rd stage of LRAS. Less incentive to be more productive. AD increase just leads to increase in price level. Inflation causes less international competitiveness.

45
Q

Immigration effects

A

Positives:
more C - greater AD
more production - greater AS
more skills
fill in gaps in labour market
solution to ageing population

Cons:
more pressure on public services
fewer jobs available for domestic workers
wages may not rise with inflation
lack of high skilled

46
Q

Causes of high inflation

A

demand pull eval - if there was spare capacity in economy, higher AD may not cause increase in PL
in long run, AS can rise to accommodate higher AD so PL does not rise

inflation can be okay in relativity to other countries

demand pull better than cost push

47
Q

pros of inflation

A

inequality falls due to lower wealth and lower value of
loans
better than deflation - postponing consumption
encourages cost efficiency

48
Q

ilo labour force survey pros and cons

A

allows for inter-country comparisons
shows regional data

sampling errors - always have margin of error
costly and time consuming
conducted quarterly; may not pick up changes in labour market quickly

49
Q

real wage unemployment

A

real wage rates are stuck at a level above that needed to reduce unemployment further

e.g. minimum wage: unemployed workers would be willing to work for less than minimum wage but business cannot afford but legally must give minimum wage.

50
Q

limitations of bop

A

accounting errors
black market - unrecorded transactions
measured in dollars and value varies

51
Q

green gdp

A

GDP - environment costs

however hard to quantify environment costs

52
Q

cyclical unemployment

A

Unemployment caused by a persistent lack of aggregate demand for goods and services

53
Q

structural unemployment

A

Unemployment that results from the decline in an industry which leaves people unemployed because they do not have the skills needed by industries that are growing.

54
Q

real wage unemployment

A

when wages are too high, excess supply of labour

corrected by reduction in NMW and strength of trade unions

A Level Economics Theme 2 (5 decks)

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