2.1: Measures of Economic Performance

Question 1

The main economic groups (Government, Producers, Consumers and Workers) are all inter_________

Economic Growth

Answer 1

Interdependent

Question 2

What is Gross Domestic Product (GDP)?

Economic Growth

Answer 2

GDP measures total value of national output produced in a given time period (e.g. a quarter, a year)

Question 3

What is meant by real GDP?

Economic Growth

Answer 3

GDP adjusted for inflation

Question 4

What are the 3 ways of measuring GDP?

Economic Growth

Answer 4

National output = national expenditure = national income

Question 5

What is Purchasing Power Parities (PPP)?

Price Stability

Answer 5

The idea that items cost the same in different countries, based on the exchange rate

Question 6

What is inflation?

Price Stability

Answer 6

The rate of an increase in prices over a given period of time

Question 7

What is deflation?

Price Stability

Answer 7

The rate of decrease in prices over a given period of time

Question 8

What is disinflation?

Price Stability

Answer 8

A decrease in the rate of inflation

Question 9

What is the Wage-Price Spiral?

Price Stability

Answer 9

A wage price spiral is a situation where workers bid for higher wages because they have seen their real income eroded by fast-rising prices.

This can lead to a further burst of cost-push inflation in an economy

Question 10

What is hyperinflation?

Price Stability

Answer 10

Rapid and uncontrollable price increases in an economy, typically at rates exceeding 50% each month over time

e.g. 1920s Germany

Question 11

What are shoe leather costs?

Price Stability

Answer 11

The costs that people incur to minimize their cash holdings during times of high inflation.

This can be the effort that people expend to get rid of the current currency for a stable foreign currency or asset.

Question 12

What are menu costs?

Price Stability

Answer 12

The costs incurred by a firm when it changes its prices

e.g. updating advertising material

Question 13

Why could debtors benefit from inflation?

Price Stability

Answer 13

The real value of their debt may fall.

Question 14

What is meant by employment?

Low Unemployment

Answer 14

The total number of people with a job

Question 15

What is meant by unemployment?

Low Unemployment

Answer 15

When people who are willing and able to work are unable to find employment

Question 16

What is meant by full employment?

Low Unemployment

Answer 16

When all those able and willing to work are in paid employment at the current wage rate.
Note that economists will still refer to this even when not quite at 100% employed as this is unrealistic.

Question 17

What is the participation rate?

Low Unemployment

Answer 17

The percentage of the population (or sub group) either in work or unemployed.

Question 18

The labour force

Low Unemployment

Answer 18

The total number of people in work or actively seeking work

Question 19

People without a job who are not actively seeking work. They are neither in employed or unemployed.

Low Unemployment

Answer 19

Economically Inactive

Question 20

The Unemployment Rate

Low Unemployment

Answer 20

Those who are unemployed as a proportion of those who are economically active

Question 21

What name is given to people who have been out of work for a long time who may give up on job search up and effectively leave the job market.

Low Unemployment

Answer 21

Discouraged workers

Question 22

What is meant by the Long-term unemployed?

Low Unemployment

Answer 22

Referring to people unemployed for at least one year.

Question 23

The two methods used to measure unemployment

Low Unemployment

Answer 23

-The Claimant Count
-The Labour Force Survey (ILO Method)

Question 24

Which method is used more commonly to measure unemployment? Why?

Low Unemployment

Answer 24

It is an internationally used method so the data is directly comparable to other countries.

Question 25

What is the Claimant Count? | Low Unemployment

Answer 25

A measure of unemployment; counts only those people who are eligible to claim unemployment related benefits (e.g. Job Seeker’s Allowance)

Question 26

Why does the Claimant count typically give a lower measure than the Labour Force Survey? | Low Unemployment

Answer 26

Because some unemployed may not be eligible or may choose not to claim benefits, whether because of pride or that they don’t think it’s worth the effort for the low payment.

Question 27

What is the Labour Force Survey (ILO Method)? | Low Unemployment

Answer 27

A measure of unemployment that covers those who have looked for work in the past four weeks and are able to start work in the next two weeks.

Question 28

What is the ILO? | Low Unemployment

Answer 28

International Labour Organisation

Question 29

Strengths of UK Unemployment Data | Low Unemployment

Answer 29

-Timely figures in new each month -Large sample size (40,000+) for the LFS measure -local & regional jobless data helps policy -In UK, there’s a low level of welfare benefit fraud

Question 30

Limitations of UK Unemployment Data | Low Unemployment

Answer 30

-Much hidden unemployment -Sample errors are inevitable -High level of underemployment -High rate of labour migration affects accuracy

Question 31

When workers are unemployed for short lengths of time between jobs. Not considered a serious problem by most economists | Low Unemployment

Answer 31

Frictional Unemployment

Question 32

What is seasonal unemployment? | Low Unemployment

Answer 32

When workers are unemployed at certain times of the year, such as building workers or agricultural workers in winter. Little can be done to prevent it.

Question 33

What is cyclical/demand-deficient unemployment? | Low Unemployment

Answer 33

When there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job. Factories & offices can remain empty. Relates to the economic cycle with movements from boom to recession over time.

Question 34

When workers are unemployed because real wages are too high (surpass equilibrium) and inflexible downwards, leading to insufficient demand for workers from employees. | Low Unemployment

Answer 34

Real wage/classical unemployment

Question 35

What is structural unemployment? | Low Unemployment

Answer 35

When the pattern of demand and production changes, leaving workers unemployed in labour markets where demand has shrunk. Includes regional, sectoral and technological unemployment.

Question 36

When groups of workers across industries may be put out of work by new technology. Without retraining and geographical mobility, these workers may remain unemployed. Is a type of structural unemployment. | Low Unemployment

Answer 36

Technological unemployment

Question 37

What is regional unemployment? | Low Unemployment

Answer 37

When a lack of mobility of Factors of production between regions leads to regional inequalities. E.g. areas in the south of UK tend to be at full employment whereas northern areas have suffered more, leading to the north south divide.

Question 38

The closure of the UK steel/coal industries in the 1980s is an example of what type of unemployment? | Low Unemployment

Answer 38

Structural/sectoral unemployment

Question 39

Which type of unemployment may be considered healthy for the economy? Why? | Low Unemployment

Answer 39

Frictional is often considered a healthy type of unemployment as it can show that there is confidence in the economy.

Question 40

# Explain: Why might immigration lead to lower wages? | Low Unemployment

Answer 40

1. There will be a higher supply of labour and so firms are able to pay lower wages as people compete for jobs. 2. Immigration is likely to bring lower-skilled labour and so firms can pay less due to less skills. ## Footnote This then encorurages workers to retrain for higher-skilled jobs.

Question 41

What does **Occupational** mobility of labour refer to? | Low Unemployment

Answer 41

Skills, qualifications, human capital

Question 42

What does **Geographical** mobility of labour refer to? | Low Unemployment

Answer 42

Housing and infrastructure

Question 43

# Define: NEETs | Low Unemployment

Answer 43

Not in Employment, Education and Training

Question 44

# List: Concerns about NEETs | Low Unemployment

Answer 44

- Wasted productive potential - More spent on benefits - Lower standard of living - May become a long-term problem

Question 45

# Define: Hysterisis | Low Unemployment

Answer 45

Deterioration of skills, employability, and quality

Question 46

# Define: The Balance of Payments | Balance of Payments ## Footnote A.K.A BOP

Answer 46

Records all financial transactions made between consumers, firms and the government in one country with other nations

Question 47

# Define: Current Account [of the BOP] | Balance of Payments

Answer 47

The main measure of external trade performance

Question 48

What makes up the **Trade Balance**? | Balance of Payments

Answer 48

- Trade Balance in goods - Trade balance in services

Question 49

What makes up the **Income Balance**? | Balance of Payments

Answer 49

- Net Investment Income from Overseas Assets (Primary Income) - Net money Transfers (Secondary Income)

Question 50

What is meant by Net Money Transfers? | Balance of Payments ## Footnote A.K.A Secondary Income

Answer 50

Includes oversea aid, remittances, etc. This is usually stable for the UK and is negative.

Question 51

What is meant by Net Investment from Oversea Assets? | Balance of Payments ## Footnote A.K.A Primary Income

Answer 51

Income earnt from foreign investments, like dividends or rent. It is negative when foreign people have profitable UK investments. ## Footnote This varies a lot for the UK

Question 52

Tangible and Intangible products are sometimes referred to as ? | Balance of Payments

Answer 52

Visibles and Invisibles

Question 53

# Define: Current Account Deficit

Answer 53

When there's a net outflow of demand and income from the circular flow ## Footnote The UK's CA deficit has been steadily growing since the late 1990s

Question 54

# List: Causes of a CA Deficit | Balance of Payments

Answer 54

- Lack of Resources - Higher Incomes - Inflation - Competition - Exchange rates

Question 55

# Explain: How may Increased Incomes lead to a CA Deficit? | Balance of Payments

Answer 55

Increased average incomes leads to higher prepensity to import as more luxury items are demanded ## Footnote Dependent on the incomes of other countries though.

Question 56

# Explain: How may competition lead to a CA Deficit? | Balance of Payments

Answer 56

If foreign industries are able to be more competitive, UK firms may get left behind and so people export more from the foreign firms. May be because of lower min wages or regulations in foreign countries. ## Footnote e.g. Uk Coal mines 1970s/80s

Question 57

# Explain: Why does a Stronger £ lead to CA deficit? | Balance of Payments

Answer 57

When the £ is stronger, consumers can purchase more of a foreign currency for the same amount and therefore import more foreign goods for the same price. It is more expensive for foreign consumers to import from the UK so exports decrease. ## Footnote SPICED and WPIDEC can be used