2.1 Measures of Economic Performance

Question 1

What is Economics growth?

Answer 1

• The measure of rate of change in output (the increase in long term productive potential of a country)

Question 2

What is GDP?

Answer 2

• Gross Domestic Product (the total value of goods and services produced in a year)

Question 3

What is real GDP?

Answer 3

• GDP taking into account inflation

Question 4

What are the 3 main measures of economic growth?

Answer 4

• GDP (gross domestic product)
• GNI (Gross national Income)
• GNP (gross national product)

Question 5

What is PPP?

Answer 5

• Purchasing power Parity
• Compares different countries’ currencies using a “basket of goods”
  Big Mac Index

Question 6

What are 4 problems with using GDP?

Answer 6

• Inaccuracy of data (Black market, tax avoidance, incorrect data)
• Inequalities (Growth from just one group of people)
• Quality of goods (better technology now than in the past)
• Types of Spending (e.g., spending on more defence isnt necessarily good)

Question 7

What are the 6 key factors of National Happiness?

Answer 7

• Real GDP per Capita
• Health
• Life expectancy
• Freedom
• Generosity
• Absence of corruption

Question 8

What is the Easterlin Paradox?

Answer 8

• The link between real incomes and happiness
  (those with lower incomes see greater happiness with rises in wages)

Question 9

What is Inflation, Deflation and Disinflation?

Answer 9

• Inflation: General Increase in prices
• Deflation: General Decrease in price
• Disinflation: The reduction in the rate of inflation

Question 10

What is CPI? What is it used for

Answer 10

• Consumer Price Index (measures changes in price of goods and services purchased by households using a basket of good)
• Used to calculate inflation (Using annual price changes)

Question 11

What are the 4 Problems with using CPI?

Answer 11

• Unrepresentative of certain people
  (Top and bottom 4% not included; No family has the same spending habits)
• Sampling problems
  (Many households do not take the survey; lack of information)
• Changes in Tastes and Fashions
• Mortgage Interest Repayments
  (CPI does not take into account Mortgages, which is a large percentage of household expenditure)

Question 12

What is the Retail Price Index?

Answer 12

• Same as CPI, but takes into account more variables (e.g., mortgage repayments)

Question 13

What are the 3 causes of Inflation?

Answer 13

• Demand-Pull (inflation due to rapid growth in AD)
• Cost-push (high prices due to higher cost of production e.g., wage increases)
• Growth on Money Supply (too much money but same supply)

Question 14

What are the 3 effects on inflation of customers?

Answer 14

• Less disposable income if incomes don’t rise
• Saved money is worth less
• Less consumer spending

Question 15

What are the 2 measures of unemployment?

Answer 15

• Claimant Account (amount of people receiving benefits from being unemployed)
• Labour Force Survey (survey for households to determine who is employed)
  Only an estimate as it is a sample

Question 16

What are the 2 differences between the claimant account and LFS?

Answer 16

• Claimant account includes hidden economy (LFS does not)
• LFS includes those unemployed but cannot claim benefits i.e., partner working (claimant does not)

Question 17

Why is it argued that both LFS and Claimant account underestimate the figure?

Answer 17

• Do not include working part-time, but would like to be full-time
• Do not include hidden employed (i.e., those on government schemes)

Question 18

What is under-employment? When does it occur?

Answer 18

• Those working part-time, but would like to work full-time
• Tends to increase during a recession (firms reduce hours to cut cost)

Question 19

What are the 5 types of unemployment?

Answer 19

• Frictional (unemployment when moving between jobs; only short-term)
• Structural (unemployment due to lack of demand for labour)
• Seasonal (unemployment due to lack of demand during certain seasons)
• Cyclical Unemployment (unemployment due to lack of demand for goods/services)
• Real Wage Inflexibility (Excess supply of labour due to minimum wage)

Question 20

What are the 2 effects of migration for labour? (one pro, one con)

Answer 20

• Pro: Net inward migration increases jobs (more spending etc)
• Con: Lower wages (due to increased supply)

Question 21

What is the Balance of payments?

Answer 21

• A record of a country’s transactions with the rest o the world

Question 22

What are the 4 components of BoP?

Answer 22

• Current account (records for payments from buying and selling goods)
• Financial Account (Record of financial investments)
• Capital Account
• Balancing item (more in theme 4)

Question 23

What are the 4 parts of the current account?

Answer 23

• Trade in goods
• Trade in services
  *Balance of trade)
• Net Income flow (money in)
• Net Income transfers (money out)

Question 24

What is a Current account Surplus and Deficit?

Answer 24

• Surplus: Exports and greater than imports
• Deficit: Imports are greater than exports

Question 25

What are the 4 macroeconomic Objectives?

Answer 25

• Low unemployment
• Low and stable inflation
• Economic Growth
• Balance of Payment Equilibrium

Question 26

What is the claimant account?

Answer 26

Measure of unemployment by calculating the amount of people claiming benefits from being unemployed