2.1 Measures of economic performance Flashcards

Question

LFS

Answer 1

Labour Force Survey - survey of 60k random households to find out their employment status ILO international so allows comparisons between different countries

Answer 2

Only 60k households - sampling errors Costly and time consuming Biased survey Outdated information (time lag when findings are published) Not representative

Answer 3

number of people claiming unemployment related benefits JSA

Answer 4

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

Answer 5

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

Answer 6

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

Answer 7

Difference between money going in and out of economy

Answer 8

sending money to people in another country

Answer 9

citizens net income from abroad (returns on FOP)

Answer 10

net transfers abroad (one-sided, aid)

Answer 11

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

Answer 12

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

Answer 13

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

Answer 14

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

Answer 15

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

Answer 16

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

Answer 17

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

Answer 18

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

Answer 19

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

Answer 20

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.

Answer 21

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

Answer 22

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

Answer 23

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

Answer 24

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

Answer 25

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.

Answer 26

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

Answer 27

GDP - environment costs however hard to quantify environment costs

Answer 28

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

Answer 29

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.

Answer 30

when wages are too high, excess supply of labour corrected by reduction in NMW and strength of trade unions