2.1 - Measures of economic performance Flashcards
What is GDP?
the value of all goods/services produced in a given time
Real GDP
figures with removed inflation (‘at constant prices’)
Nominal GDP
figures includes inflation
GDP equation
GDP ÷ population = per capita (removes population impact)
What is economic growth?
an increase or decrease in GDP over time
What is value?
price × quantity (revenue)
What is volume?
output at constant prices
What is PPP?
Purchasing Power Parity (PPP) - adjusts GDP to reflect what money can actually buy in different countries
GDP limitations
- benefits of economic growth may only apply for a small proportion of the population
- high GDP does not equal happiness for people
What is GDP? (compared to GNP)
regardless of nationality
What is GNP?
made by British people, regardless of location
What is the business cycle?
Economic/trade cycle, boom-bust cycle.
The rise and fall of economic activity
What is the balance of payments?
current account surplus = inflows > outflows
current account deficit = outflows > inflows
What is the current account?
trade and income transfers and current transfers
What are income transfers?
inflows and outflows of money to home countries
What are current transfers?
inflows and outflows of loans or grants
What are the UKs biggest imports? (outflows)
goods - oil, machines, minerals
services - tourism
What are the UKs biggest exports?
(inflows)
goods - pharmaceuticals
services - financial services
What are the 4 sections of the Current Account?
1) Trade in goods - imports and exports (net trade)
2) Trade in services - invisible, tangible goods
3) investment and employment income (primary income)
Investment income - Interests, Profits, Dividends (IPDs)
Employment income - wages being sent in and out
4) Transfers (secondary income) - gov transfers overseas EU
Each section has its own balance, which combine to give the overall value of the current account
What is unemployment?
currently out of work, actively seeking
Underemployment
have a job, but want to work more
Effects of unemployment
- increased of unemployment -> decrease AD -> low growth
- adversely affects people’s psychological wellbeing
- government decreases tax revenue, needs to increase GS on welfare
What are the 2 measures of unemployment?
ILO measure and the Claimant Count
What is the ILO measure?
- International Labour Organisation
- survey of 80,000 individuals
- reduces claimant count
- unemployment as a percentage (%) of labour force
What is the Claimant Count?
How many people claim jobseekers allowance in a given period of time
Types of unemployment
Structural, frictional, seasonal, cyclical (demand defficient), classical
Structural unemployment
when workers don’t have the right transferable skills
Frictional unemployment
workers are moving between jobs
Seasonal unemployment
demand for a good/service is low at a certain time of the year (E.g: Tourism)
Cyclical unemployment
lose jobs due to slow in economic growth (demand defficient)
Classical unemployment
when supply of labour does not adjust to decrease in demand for labour
Wages stay high -> unemployment
What is inflation?
increased cost of living/ general price level over time
What is deflation?
prices actually fall (negative inflation rate)
What is disinflation?
decrease inflation rate, increase prices at a smaller rate
What is hyperinflation?
large increases in price level
Causes of inflation
1) Demand pull
2) Cost push
3) Growth of money supply
Measures of inflation
RPI and CPI
What is the RPI?
Retail Price Index - includes housing costs and uses arithmetic mean, gives a higher estimation of inflation
What is the CPI?
Consumer Price Index - ‘basket’ of everyday goods, however prices could change in quality, increase in substitutes and temporary shocks to inflation figures
What are the effects of inflation?
• Creates uncertainty -> consumers decrease spending -> Decrease AD
• Loss of international competitiveness -> exports decrease
• savings are now worth less - people on fixed incomes will see a decrease in PPP
• Menu costs - firms need to update all prices
• shoe leather costs - consumers will have to spend more time and energy trying to find cheaper options
