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Economics > 2.1 Measures Of Economic Performance > Flashcards

2.1 Measures Of Economic Performance Flashcards

1
Q

Economic growth

A

The increase in the long term productive potential of the country

measured through % change in real GDP per annum or shift in PPF

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2
Q

Sustainable economic growth

A

Economic growth that meets the needs of today without compromising the needs of future generations

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3
Q

Real GDP

A

The total value of goods and services produced in a country within a year adjusted for inflation (not adjusted = nominal)

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4
Q

Total GDP

A

Overall GDP for the country

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5
Q

GDP per capita

A

The total GDP divided by the number of people in a country

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6
Q

GDP indicates?

A

Standard of living in a country

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7
Q

GDP per capita growth

A

GDP per capita increases if national output grows faster than population over a given time period as there are more goods and services to enjoy per person

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8
Q

Real values

A

Volume of national income

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9
Q

Nominal values

A

Value of national income

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10
Q

Value equation

A

volume x current price level

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11
Q

GNI

A

The value of goods and services produced by a country over a period time plus net overseas interest payments and dividends.

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12
Q

GNP

A

The value of goods and services over a period of time through labour or property supplied by citizens both domestically and overseas

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13
Q

Comparison of growth overtime

A

Growth figures over a set period of time can be compared against similar countries to see whether the country has done well or not
Can compare standard of living / economic welfare

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14
Q

Comparisons of growth between countries

A

When countries have a difference in population, a different in total GDP per capita so GDP per capita is used

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15
Q

Purchasing Power Parities

A

An exchange rate of one currency for another which compares how much a basket go goods in the country costs compared to another country

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16
Q

PPP advantage

A

Takes into account cost of living when comparing countries

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17
Q

Informal economy

A

Estimated to take up 10-15% of GDP

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18
Q

Problems of GDP comparing standard go living

A

Inaccuracy of data - some countries may be inefficient at collecting/calculating data, Informal economy
Errors in calculating inflation rate
Doesn’t take into account quality of goods and services
Issue go which unit should be used to compare different currencies/ figures
Some types of expenditure, e.g defence, does not increase standard of living but may increase GDP

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19
Q

National happiness

A

Qualitative measure of progress or development which includes factors such as sustainable and equitable socio-economic development

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20
Q

Easterlin Paradox

A

An increase in consumption of material goods will increase happiness if basic needs aren’t met however, once these needs are met, an increase in consumption won’t increase long term happiness

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21
Q

Actual growth

A

Where aggregate demand is equal to aggregate supply

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22
Q

Potential growth

A

Where aggregate supply is operating at full capacity (where all resources are fully employed)

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23
Q

Inflation

A

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

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24
Q

Deflation

A

The fall of prices and indicates a slowdown in the rate of growth of output in the economy

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25
Q

Disinflation

A

A reduction in the rate in of inflation

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26
Q

CPI

A

ONS collects prices on 710 goods and serves from 20000 shops in 141 locations and prices are updated every month
New items added to list every year
Prices are combined using average household spending pattern to produce an overall price index

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27
Q

Average household spending

A

Worked out through Living costs and food survey, where 5500 families keep diaries of what they spend fortnightly
Takes into account how much is spent through each item so they are weighted

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28
Q

Limitations of CPI

A

Not totally representative as it is impossible for the figure to take into account every single good that is sold in a country
Does not include price of housing which tends to increase in price more than other goods
Difficult to make comparisons with historical data as it is very recent
Overestimates inflation as it doesn’t take into account that goods have improved in quality

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29
Q

Cost push inflation

A

A general rise in the price level because of increasing COP (decrease in SRAS), as firms will put prices up to maintain profit margin. This shows a decrease in real GDP and a fall in productive capacity

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30
Q

Demand pull inflation

A

When aggregate demand increases at a faster rate than aggregate supply. AD increases, prices increase. Shows an increase in real GDP but at an unsustainable rate

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31
Q

Menu costs

A

An inflation cost for firms as they have to change the prices on their menus

32
Q

Administration costs

A

An inflation cost for firms as they have to renegotiate wages for labour and search for cheaper raw materials

33
Q

Cost of living

A

The rate by which inflation reduces a households ability to buy goods and services

34
Q

Wage price spiral

A

Where labour demands higher wages due to inflation, which in turn creates more inflation through higher costs for firms

35
Q

Effects of inflation on consumers

A

If income does not rise with inflation, they will have less to spend which causes a fall in standard go living
Those in debt pay it off at price go cheaper value whereas those who are owed are getting cheaper value money back
Savers lose out as money saved is worthless
Psychological effects as consumers may chose not to spend even if income rises as they feel less well of

36
Q

Effects of inflation on firms

A

Exports become more expensive and therefore less competitive if inflation in Britain is higher than other countries
Deflation causes consumers to postpone their purchases as they wait or prices to fall further. Decreases demand and therefore profit
Inflation is difficult to predict so firms cannot plan long term
Changing prices means changing menus, labelling which can be expensive

37
Q

Effect of inflation on government

A

If gov fail to change excise taxes in line with inflation than real gov revenue will fall
If gov fail to change personal allowance in line with inflation then gov revenue increases and taxpayers have less money

38
Q

Effect of inflation on workers

A

If workers do not receive yearly pay rises of the rate of inflation, they will be worse off
Deflation can cause staff to lose jobs as firms have to let go of labour to cut costs since demand in falling for goods.

39
Q

Unemployment

A

Those who are willing and able to work and are actively seeking work but cannot find a job.

40
Q

Claimant count

A

The number of people receiving benefits for being unemployed

41
Q

Issues with Claimant count

A
42
Q

Labour force survey

A
43
Q

Issues with LFS

A
44
Q

Economically active

A

Those aged 16 and over who are either in employment or unemployed

45
Q

Economically inactive

A

People not in employment who have not been seeking work within the last four weeks and/or are unable to start work within the next two weeks

46
Q

Employment rate

A

% of population of working age who are employed

47
Q

Unemployment

A

% of the labour market that are unemployed

48
Q

Labour productivity

A

Labour output per hour

49
Q

Under employed

A

Those in part time or zero hour contracts
Those in jobs which do not reflect their skill level
Aren’t included in unemployment statistics

50
Q

Significance of changes in activity

A

Increase in inactivity decreases size of labour force therefor causing lower productive potential of the country. Thus lower GDP and tax revenue as less people are working

Decreases in inactivity could lead to more people just being unemployed if there are no jobs available

51
Q

Frictional unemployment

A

Unemployment that occurs when people are moving between jobs. Only short term

52
Q

Causes of frictional unemployment

A

New workers entering labour market
People who have chosen to leave their previous job
These people may take a while to locate and gain a job that they are willing to accept

53
Q

Structural unemployment

A

Unemployment caused by occupational immobility and declining industries. More serious as it is long term decline in demand in an industry leading to reduction in employment.

Providing skills/training in areas that are experiencing high demand will reduce this type of unemployment

54
Q

Types of structural unemployment

A

Regional unemployment is where certain areas of a country suffer from very low levels of unemployment due to industry closures
Sectoral unemployment is where one sector suffers a dramatic fall in employment
Technological unemployment is where an improvement in tech means that jobs are replaced

55
Q

Seasonal unemployment

A

Unemployment caused due to a reduced demand for labour over a seasonal period

Little that can be done to prevent this from occurring

56
Q

Cyclical unemployment

A

Unemployment due to a general lack of demand of goods and services within the country. Due to lack of AD

In a recession, there is a decrease in demand causing businesses to cut employment in order to control costs and restore some of their profitability

57
Q

Real wage unemployment

A

Unemployment caused by a wage disequilibrium resulting in surplus labour. Results from NMW being set above the natural equilibrium

58
Q

Real wage inflexibility

A

Where the labour market is inflexible to wage changes and changes in demand due to contract law + trade union power

59
Q

Occupational immobility

A

Where workers do not have the desired skills to find a job

60
Q

Geographical immobility

A

Where workers cannot find a job in different areas due to the cost of moving

61
Q

Migration

A

Increase in net inward migration leads to increased jobs. Most of these people people come to UK to work, often take lower skilled jobs and are less likely to claim benefits. Due to the circular flow of income, immigrant spending creates jobs and total employment increases without increasing unemployment (dependent on how much money immigrant workers send back home)

62
Q

Migration and lower wages

A

UK firms are able to recruit foreign workers meaning an increased supply of labour and so price equilibrium of labour is reduced. More competition for jobs and lower skilled workers more affected.

63
Q

Skills

A

Economies progress overtime and as a result, higher skills are needed.
For UK to maintain employment levels, it needs to increase skills of workforce.
Migrant workers may fill shortages if their skills fit

64
Q

Impact of unemployment on workers

A

Loss of income
Stigma of being unemployed - low mental health
Long term unemployed may lose their skills
Those in jobs may suffer from lower job security and will fear being made redundant

65
Q

Impact of unemployment for firms

A

Decrease in demand for their goods, therefore fall in profit
Smaller pool of skilled people due to long term unemployment
Can offer low wages as people will take the job anyway because they know there is a lack of jobs

66
Q

Impact of unemployment on consumers

A

Unemployed consumers have less available to spend
Firm may lower prices and put on sales in order to increase demand for their product, cheaper for consumer

67
Q

Impact of unemployment for gov

A

Reduced income results in fall in tax revenue and higher spending on welfare payment
Increased budget deficit

68
Q

Impact of unemployment for society

A

Social deprivation (increased crime)
Loss of potential national output and represents an inefficient use of scarce resources

69
Q

Balance of payments

A

A total record of the inflow and outflow of income from an economy. Payments must balance between the current and capital account

70
Q

Current account

A

The sum of a country’s balance of:
Trade in goods and services (visibles as you can physically see them. Goods that are traded whether raw or finished)
Trade in services (invisibles. Services that are traded in or out of country)
Net income (remittances - wages from abroad)
Net transfers (payments to and from other countries e.g foreign aid)

71
Q

Balance of trade in goods and services

A

Balance of trade + balance of invisibles

72
Q

Current balance

A

Balance of trade + balance of invisibles + net income and current transfers

73
Q

Current account surplus

A

Where exports are greater than imports

74
Q

Current account deficit

A

Where imports are greater than exports

75
Q

International competitiveness

A

The extent to which an economy is able to produce goods and services at a more efficient and cheaper rate than other countries. Influence by E.R, COP and quality of goofs.

Supply side policies work best to improve international competitiveness

Economics (12 decks)

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