2.1-measures of economic performance

Question 1

what is economic growth?

Answer 1

-rate of change of output
-increase in long term productive potential of an economy
-typically measured by % change in real GDP per annum or shift of PPF

Question 2

what is GDP?

Answer 2

-standard measure of output, allows us to compare countries
- total value of goods and services produced within a country in a year
-indicator of living standards

Question 3

difference between total GDP and GDP per capita

Answer 3

-total represents overall for country
-per capita is total divided by population

Question 4

real GDP Vs nominal GDP

Answer 4

-real GDP strips out effects of inflation while nominal GDP does not

Question 5

volume Vs value

Answer 5

-real values are described as volume of national income, whilst nominal represent value

Question 6

other national income measures- GNI

Answer 6

-gross national income
-value of goods and services produced by a country over time plus net overseas interest payments and dividends
-adds what country earns from overseas investment and subtracts what foreigners earn in a country and send back home

Question 7

other national income measures - GNP

Answer 7

-gross national product -value of goods and services over a period of time through labour or property supplied by citizens of a country both domestically and overseas.
-This means it is the value of all the goods produced by citizens
of a country, whether they live in the country or not

Question 8

making comparisons of growth between countries and over time

Answer 8

over time
-changing national income levels
-can also make judgements about economic welfare
-important to use per capita figures otherwise growth in GDP may just indicate larger population
between countries
-must use per capita
-must use real GDP

Question 9

purchasing power parities

Answer 9

-An exchange rate of one currency for another which compares how much a typical basket of goods in the country costs compared to one in another country
-alternative for GDP
-takes cost of living and therefore living standards into account

Question 10

limitations of GDP to compare living standards

Answer 10

-inaccuracy of data (hidden markets, inefficiency, errors in calc inflation and home produced services)
-inequality
-quality of goods and services
-spending (some such as defence will not improve living standards)
-education

Question 11

UK national wellbeing

Answer 11

-govt asked 4 key questions about life satisfaction, anxiety, happiness and worthwhileness where people answer on scale of 1-10

Question 12

relationship between real income and subjective happiness

Answer 12

-happiness and income are positively related at low incomes
-but higher income level increases are not associated with an increase in happiness
-also depends on people around us and social status

Question 13

what is inflation?

Answer 13

-general increase of prices in an economy which erodes the purchasing power of money

Question 14

what is deflation?

Answer 14

-fall of prices which indicates a slowdown in the rate of growth of output in an economy

Question 15

what is disinflation?

Answer 15

-a reduction in rate of inflation, still rising but not by as much

Question 16

calculating rate of inflation using consumer price index (CPI)

Answer 16

-710 goods and services from 20,000 shops in 141 locations and online sites
- The average household spending is worked
out through the Living Costs and Food Survey,
- The average household spending is worked
out through the Living Costs and Food Survey,

Question 17

limitations of consumer price index (CPI)

Answer 17

-impossible to take all goods into account so it is not totally representative
-does not include the price of housing
-difficult to make comparisons with historical figures

Question 18

retail price index (RPI) as an alternative measure for inflation

Answer 18

-similar to CPI but differences in how it is calculated
-includes housing costs
-CPI takes into account people switching products when prices rise
-RPI excludes top 4% of income earners and low income pensioners as they are not average

Question 19

3 main causes of inflation

Answer 19

1.demand pull
-if any component of AD rises, so would inflation
2.cost push
-decrease in AS, businesses raise prices to keep up prof margins
3.growth of money supply
-too much money in economy, prices will have to rise to meet supply

Question 20

effects of inflation on consumers

Answer 20

-if incomes do not also rise they will have less to spend
-Those who are in debt will be able to pay it off at a price which is of cheaper value
-psychological effects meaning spending will decrease

Question 21

effects of inflation on firms

Answer 21

-British goods will become less competitive over the world
-difficult to predict so firms cannot predict the future
-change labelling etc which can be expensive

Question 22

effects of inflation on government

Answer 22

-if they fail to change personal income tax allowances (the amount a worker can earn tax free) then real government income will increase and taxpayers will have less money.

Question 23

effects of inflation on workers

Answer 23

-if they do not receive a pay rise at rate of inflation, their living standards will decrease
-deflation can cause staff to lose their jobs due to lack of demand

Question 24

2 measures of unemployment

Answer 24

1.claimant count —number of people receiving benefits for being unemployed
2.international labour organisation and labour force survey
- Employed: Those who do more than 1 hour of paid work a week
-Unemployed: Those of working age who are without work, able to work and
seeking work and have actively sought work in the last 4 weeks and are available to start work in the next 2 weeks.

Question 25

what is under employment Vs unemployment

Answer 25

-under employed are those who are in part time or 0 hour contracts
-also include those in jobs that do not reflect their skill level
-this increases in recessions