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Economics > 2.1 - Measures of economic performance > Flashcards

2.1 - Measures of economic performance Flashcards

1
Q

What is economic growth?

A

A measure of an increase in real GDP.

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2
Q

What is gross domestic product (GDP)?

A

Total value of all goods and services produced within an economy in a year.

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3
Q

What does the term ‘real’ mean?

A

Adjusted for inflation.

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4
Q

What is potential economic growth?

A

An increase in the productive potential of an economy. Cause rightward shift in PPF.

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5
Q

What is a recession?

A

When an economy suffers two consecutive quarters of negative economic growth.

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6
Q

What is the difference in nominal and real GDP?

A

Nominal GDP hasn’t been adjusted for inflation, whereas real GDP has.

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7
Q

What is GDP per capita?

A

GDP divided by population.

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8
Q

What does a volume measure of output measure?

A

Amount of goods produced.

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9
Q

What does a value measure of output measure?

A

Amount of goods produced multiplied by the price that they were sold at.

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10
Q

What is gross national income (GNI)?

A

Measures income received by a country both domestically and via net incomes from overseas.

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11
Q

What are purchasing power parities (PPP’s)

A

Used to compare GDP of different countries and take into account the cost of a ‘basket of goods’

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12
Q

What is meant by quality of life?

A

A measure of standard of living that takes into account more than just income.

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13
Q

Name 4 limitations of using GDP to compare living standards between countries.

A

Differences in population - requires GDP per capita.

Different rates of inflation - requires real GDP.

Methods of calculations and reliability may differ from country to country.

Differences in income distribution.

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14
Q

What does the UK do to measure national well-being?

A

Undertakes regular surveys of personal well-being that makes an estimate of overall satisfaction with life.

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15
Q

What is the relationship between real incomes and subjective happiness?

A

There is a positive relationship between income and happiness up to a certain level of income. However, after a certain point, marginal gains in happiness fall.

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16
Q

What is the definition of subjective happiness?

A

A measure of how people feel about themselves.

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17
Q

What is inflation?

A

A sustained rise in the general price level.

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18
Q

What is deflation?

A

A sustained fall in the general price level.

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19
Q

What is disinflation?

A

A fall in the rate the general price level is rising (a fall in inflation).

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20
Q

What is the consumer price index (CPI)?

A

A measure of inflation used for inflation targeting in the UK. It does not include housing costs and is an index number relative to a base year (100).

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21
Q

How is the CPI calculated?

A

7000 households in the UK are surveyed using self-reported diaries of all purchases.

A price survey is undertaken once a month to collect data about price changes in the 700 most commonly used goods and services.

Weights are assigned to each item to reflect its proportion of income spent on it.

The price changes are multiplied by the weights given.

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22
Q

State 3 limitations of the CPI.

A

It does not include housing costs which make up a large proportion of household expenditure.

The list of 700 items changes only once a year so sudden changes in spending patterns are not reflected.

There are likely to be sampling errors from households.

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23
Q

What is the retail price index (RPI)?

A

A measure of inflation similar to CPI but does take into account interest payments on mortgages. Despite this, it is less accurate than CPI.

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24
Q

What are the 3 main causes of inflation?

A

Demand-pull - occurs when aggregate demand increases more quickly than aggregate supply.

Cost-push - occurs when aggregate supply decreases.

Growth of money supply - links to the source of inflation being the increase in money within the economy.

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25
Q

Name 3 causes of demand-pull inflation.

A

Decrease in interest rates.

Rise in business and consumer confidence.

Increase in government spending.

26
Q

Name 3 causes of cost-push inflation.

A

Rise in price of raw materials.

Rise in business taxes.

Increase in regulations.

27
Q

What are the effects of inflation on consumers?

A

For those on fixed incomes, their real incomes would fall.

For those with savings, the real value of their savings will decrease.

For those with loans or mortgages, if inflation is higher than the interest rates the real value of the loans will fall.

28
Q

What are the effects of inflation on firms?

A

Fall in exports - more expensive products compared to competitors makes exports less appealing.

Uncertainty - difficult to set budgets, therefore firms may chose not to invest.

Impact on monetary policy - high inflation can lead to the MPC increasing interest rates.

29
Q

What are the effects of inflation on government?

A

Fall in real value of national debt - inflation would reduce the value of debt owed by the government.

Increased inequality - inflation may make it more difficult for government to reduce income inequality.

Deterioration of balance of trade - exports are likely to decrease and imports increase. This is due to a fall in international competitiveness.

30
Q

What are the effects of inflation on workers?

A

Impact on lifestyle - if inflation is rising quicker than incomes then workers are worse off. This also works vice versa.

Unemployment - a very low level of inflation may imply little demand in an economy and therefore high unemployment.

31
Q

What is the level of employment?

A

This is the number of people in work.

32
Q

What is the employment rate?

A

This is the number of people in work as a percentage of the working age population.

33
Q

What are the 2 types of unemployment measures?

A

The claimant count - number of people claiming unemployment-related benefits.

The ILO and UK labour force survey - asks people aged between 16 and 65 whether they have been out of work over the last 4 weeks and if they are ready to start within the next 2 weeks.

34
Q

What is the jobseeker’s allowance?

A

A form of benefit paid to people who are willing and able to work but are currently not in employment.

35
Q

What is the unemployment rate?

A

The number of people out of work as a percentage of the labour force.

36
Q

What is the labour force?

A

Economically active population.

37
Q

What is underemployment?

A

Includes individuals who are seeking or available for additional work. It also include those working in jobs where there skills are not being utilised.

38
Q

Name 3 benefits of an increase in employment.

A

Increased GDP - output in the economy increases.

Increased profits for firms.

Higher government taxation revenue.

39
Q

What is human capital?

A

Knowledge and skills a workforce has that determines its productivity.

40
Q

What is the significance of a decrease in the unemployment rate?

A

Less government spending on unemployment-related benefits.

Job market becomes less flexible (fewer workers for employers to choose from).

41
Q

Who are considered economically inactive?

A

Those without a job who are not considered unemployed.

42
Q

What will occur if the inactivity rate increases?

A

Productive capacity of the country will fall.

More claims on state benefits.

43
Q

What are the 5 types of unemployment?

A

Cyclical - lack of demand within an economy means jobs are no longer required.

Structural - where an industry declines and workers’ skills become obsolete.

Frictional - where people are between jobs.

Seasonal - where people are out of work during certain periods of the year due to the nature of their work.

Real wage - where there are supply-side problems with labour.

44
Q

What is migration, immigration and emigration?

A

Migration - movement of people from one country to another.

Immigration - when people enter a country for the long-term.

Emigration - when people exit a country for the long term.

45
Q

Why may people chose to migrate?

A

Employment.

For a better quality of life.

To study.

To join family members.

46
Q

What are the potential advantages of people immigrating?

A

They can fill vacancies that may not have otherwise been filled, they also pay taxes.

47
Q

What are the potential disadvantages of people immigrating?

A

If they cannot find work, unemployment will increase.

If immigrants send money home to families abroad (remittances) the current account will worsen.

48
Q

What are the benefits of having a skilled workforce?

A

The workforce is more productive, increasing rate of economic growth.

Earning of skilled workers are likely to be higher than unskilled.

Highly skilled workers are less likely to be unemployed.

49
Q

What are the effects of unemployment on consumers?

A

Decrease in living standards.

Loss of consumer confidence leading to lower consumer spending.

Danger of mental illness if unemployed for too long.

50
Q

What are the effects of unemployment on firms?

A

Greater choice of workers to employ.

Less consumer spending leads to less revenue.

Due to a surplus of labour firms can pay workers less in terms of wages.

51
Q

What are the effects of unemployment on workers?

A

Loss of skills as workers may not have up to date training.

Loss of income.

Lower standard of living.

It can be hard to come back from long-term unemployment.

52
Q

What are the effects of unemployment on government and society?

A

Increased spending on benefits.

Less revenue from taxation.

Inequality may increase in society which can lead to an increase in crime rates.

53
Q

What is the balance of payments?

A

A record of international payments over the course of a year.

54
Q

What is the current account?

A

Records payments for transactions between countries in the present year

55
Q

What are the four key elements that make up the currents account?

A

The trade in goods balance
+
The trade in services balance
+
Investment income
+
Current transfers

56
Q

What is the balance of trade?

A

The trade in goods balance
+
The trade in services balance

57
Q

What is a current account surplus?

A

Where a counties current account is positive, i.e. more money is flowing into the country than out.

58
Q

What is a current account deficit?

A

Where a counties current account is negative, i.e. more money is flowing out of the country than in.

59
Q

What are 3 causes of a current account surplus?

A

The currency is too weak - exports are cheap and imports expensive.

There is a low rate of inflation.

There are low wage costs.

60
Q

What are 3 causes of a current account deficit?

A

The currency is too strong - exports are expensive and imports cheap.

There is a high rate of inflation.

There are high wage costs.

61
Q

What is the link between the current account and the macroeconomic objectives?

A

If a country has a constant current account deficit then this may suggest higher rates of unemployment. This can also feed into a fall in economic growth. Despite this, if the deficit is caused by a rise in imports this could show the country is experiencing a boom.

Economics (11 decks)

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