2.1 Measures of Economic Performance Flashcards
What are the seven macroeconomic objectives
High Economic Growth (2.5%)
Low Unemployment (4%)
Low Inflation (2%)
Balanced Current Account
Reducing Budget Deficit
Reducing Inequality
Environmental Factors
Define economic growth and the way its measured
A long run expansion of an economy’s productive potential
Measured through GDP
Whats the difference between “real” and “nominal”
Real is adjusted for inflation whereas nominal has not
How does GNI and GNP differ from GDP
GNP = Goods and services produced by citizens
GNI = GDP + net money from other countries
Give two problems with comparing GDP between countries
GDP is very crude as it is adjusted for inflation, cost of living and population
GDP does not indicate how equally income is distributed
How to purchasing power parities help to make comparisons of GDP between countries
They create an adjusted exchange rate reflecting the cost of living difference
Explain the Easterlin Paradox
As incomes rise our satisfaction rises up until a point where an increase in income will not increase satisfaction
Define Inflation, Deflation and Disinflation
Inflation - A sustained rise in the average price level over time
Deflation - A sustained fall in the average price level over time
Disinflation - A fall in the rate of inflation
Explain how inflation is measured using CPI
Uses a basket of goods that are weighted according to consumption that is designed to reflect the average household. Approx 700 items in the basket and changes in price are calculated as an index number against a base year
Explain the limitations of CPI
CPI is not fully representative, it does not reflect the “Non-Typical” household and does not reflect people with different spending habits like single people
CPI is slow to respond to new products/services and changing quality in goods/services
How does RPI vary from CPI
RPI includes various housing related costs like mortgages
Define Unemployment, Underemployment, Employment Rate, Unemployment Rate and Inactivity Rate
Unemployment - Those able, available and willing to work and currently out of work
Underemployment - When workers skills are under-used or workers are not working as many hours as they’d like
Employment Rate - The proportion of the working age population in employment
Unemployment Rate - The proportion of the working age population considered to be unemployed
Inactivity Rate - The proportion of the working age population that are not economically active
How is unemployment measured through the Claimant Count (CC) and the Labour Force Survey (LFS)
Claimant Count - Measures the number of people claiming unemployment benefits (Jobseekers allowance etc)
Labour Force Survey - People who actively sought work in previous four weeks and are available to start work in the next two weeks
Why is the LFS always greater than the CC
LFS takes into consideration those unemployed who are not claiming benefits
List the 5 types of unemployment
Structural Unemployment
Frictional Unemployment
Seasonal Unemployment
Cyclical Unemployment
Real Wage Inflexibility
