2.1 MEASURES OF ECONOMIC PERFORMANCE

Question 1

GDP

Answer 1

Gross Domestic Product
VALUE of the GOODS + SERVICES produced in the UK

Question 2

GNP

Answer 2

Gross National Product
VALUE of the final SERVICES + PRODUCTS from UK OWNED businesses

Question 3

GNI

Answer 3

Gross National Income
TOTAL money EARNED by INDIVIDUALS + FIRMS

Question 4

Inflation

Answer 4

SUSTAINED general RISE in PRICES across an ECONOMY

Question 5

Deflation

Answer 5

SUSTAINED FALL in PRICES across an ECOMONY

Question 6

Hyperinflation

Answer 6

INFLATION levels are extremely HIGH

Question 7

Stagflation

Answer 7

WHEN inflation is HIGH during a RECESSION, the economy is STAGNATING but prices are still RISING

Question 8

CPI

Answer 8

Consumer Price Index (NO HOUSING)

Question 9

RPI

Answer 9

Retail Price Index (INCLUDES HOUSING)

Question 10

How is inflation calculated?

Answer 10

1. Each year a few thousand households take part in a survey (LIVING COSTS AND FOODS SURVEY) in which they will record their monthly expenditure. From this, the amount of money a “average household” spends can be calculated and how the money is distributed across different good ands services.
2. Prices of this “representative basket of goods and services” are then recorded on a regular basis across the country by surveyors who record prices from different areas and retailers.

3.These results are averaged out and put into index form. The figures are then weighted on the proportion of total household income that they take up.

Question 11

Costs Of Inflation?

Answer 11

1. UNEMPLOYMENT - Inflation is more predictable.
2. COMPETITIVENESS - Higher prices in the UK reduce exports and increase imports.
3. REDISTRIBUTION COSTS - Savers are losers and Borrowers are winners.
4. PSYCHOLOGICAL - People feel worse off so spend less.
5. SHOE LEATHER COSTS - Have to shop around more to find a deal.
6. MENU COSTS - Retailers have to change price signage (menus and price tags).

Question 12

Costs Of Deflation?

Answer 12

1. CONSUMER CONFIDENCE - May be put off consumption till a later date.
2. PRICES LOWER IN THE FUTURE - Changes consumer behaviour.
3. BORROWING COSTS - Real value of debt changes.
4. SAVINGS GROW - Real value of savings grow.

Question 13

Employment

Answer 13

Being in paid work, can be employed or self-employed, part time or full time.

Question 14

Unemployment

Answer 14

People who are able, available and actively seeking paid work in the labour market but who have been unable to find a job.

Question 15

Working Age

Answer 15

16-65

Question 16

Underemployed

Answer 16

In part-time work but would like to work more OR in a job which doesn’t reflect their skill levels.

Question 17

Inactive Population

Answer 17

Includes students, stay at home parents, early retirees, unable to work due to sickness or disability.

Question 18

Labour Force (Active)

Answer 18

The active population including the underemployed (people of working age).

Question 19

Long Term Unemployed

Answer 19

In the UK those out of work for more than 12 months. Generally, they find it much harder to get jobs than the short term employed.

Question 20

The Claimant Count

Answer 20

This counts the number of people claiming unemployment related benefits, such as Job’s Seeking Allowance (JSA). They have to prove they are actively looking for work.

Question 21

Labour Force Survey (LFS)

Answer 21

The International Labour Organisation (ILO) runs a survey and asks people if they meet the following criteria:

-Been out of work for 4 weeks AND able to work and willing to work in the next 2 weeks.

OR

-Out of work, have found a job and are waiting to start in the next two weeks.

Question 22

The Unemployment Rate

Answer 22

The number of those not in work divided by the labour force.

Question 23

The Employment Rate

Answer 23

The number of those in work divided by the population or working age (16-65).

Question 24

Causes Of Unemployment

Answer 24

1) FRICTIONAL - Short term unemployment when you are between jobs. Unemployment benefits or redundancy pay help prevent leading to poverty.

2) SEASONAL - Unemployment may rise in winter and fall in summer.

3) STRUCTURAL - When demand for labour is less than its supply in an individual labour market.

4) CYCLICAL - When the economy is not in a “boom” and therefore insufficient aggregate demand in the economy for all workers to have a job.

5) REAL WAGE - Wages are stuck at a point above that needed to reduce unemployment and further.

Question 25

Costs Of Unemployment

Answer 25

1) INDIVIDUALS
-Loss of income
-Social stigma
-Mental and physical health
-Long term unemployment

2) LOCAL COMMUNITIES
-Increased social disrupt
-Shops go out of business
-Increased crime and vandalism

3) THE GOVERNMENT
-Lost revenue from taxes
- Additional costs from benefits, policing, justice etc.

4)FIRMS
-Since less spending, there is less demand for goods so firms can go out of business
-Maybe a bigger pool of unemployed workers to pick from, cheaper labour

Question 26

Government Attempts To Increase Unemployment

Answer 26

1) WOMEN
Still more likely than men to stay at home to look after children

2) OLDER WOMEN
Keeping people in work for longer reduces the welfare bill, therefore they try to increase working age

3)RECLASSIFYING WORKERS
Classing workers who are long term unemployed as disabled

Question 27

Factors Affecting Unemployment

Answer 27

1) MIGRATION
If the net migration is having more people leave (emigrate) the UK then there is a loss of workers. However, an increase in labour supply depresses wages as motivated foreign workers are prepared to compete for work by accepting lowering wages.

2) SKILLS
The average skill level required for jobs has increased and will continue to do so if the UK is to remain competitive on a global scale.

Question 28

Factors Affecting Unemployment

Answer 28

1) MIGRATION
If the net migration is having more people leave (emigrate) the UK then there is a loss of workers. However, an increase in labour supply depresses wages as motivated foreign workers are prepared to compete for work by accepting lowering wages.

2) SKILLS
The average skill level required for jobs has increased and will continue to do so if the UK is to remain competitive on a global scale.

Question 29

Balance Of Payments

Answer 29

The balance of payments records any financial transactions made between consumers, businesses and the government in one country.

Question 30

What Does The Balance Of Payments Consist Of

Answer 30

The Current Account

The Capital Account

The Financial Account

Question 31

The Current Account

Answer 31

1) TRADE BALANCE

Trade Balance = Value Of Exports - Value Of Imports

-If exports exceed imports there is a trade surplus.
-If exports don’t exceed imports there is a trade deficit.

2) NET INVESMENT INCOME/PRIMARY INCOME

Flow of profits, dividends and interest from foreign investment.

Net remittance flows from migrant workers sending money back home.
3) NET TRANSFERS/SECONDARY INCOME

Payments to international organizations e.g. UN/EU

Overseas Aids

Question 32

Causes Of Current Account Deficit

Answer 32

• Poor price and non-price competitiveness
  -Strong exchange rate affecting imports and exports
  -Recession in one or more major trade partner countries
  -Volatile global prices
  -Booming domestic economy