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BM macro economics > 2.1 Measures of economic performance > Flashcards

2.1 Measures of economic performance Flashcards

1
Q

What is GDP (gross domestic product)?

A

The value of all goods and services produced in an economy in a one year period

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2
Q

What does the word nominal refer to in economics?

A

The metric has not been adjusted for inflation. It is the actual value.

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3
Q

What is Real GDP

A

The value of all goods and services produced in a one year period whilst being adjusted for inflation

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4
Q

What is GDP per capita

A

Average economic output (GDP) of a country per person

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5
Q

What does GNI stand for

A

Gross national income

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6
Q

What does GNI measure

A

The total amount of money earned by a nations people and businesses in a one year period.

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7
Q

What does GNP stand for

A

Gross national product

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8
Q

What is GNP

A

GDP + income from abroad - income sent by non residents to their home countries

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9
Q

What is purchasing power parity

A

The exchange rate needed to buy the same quantity of products in each country

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10
Q

What are limitations of using GDP for comparisons

A

Lack of information provided (distribution of income is provided as an average, could be a large amounts of inequality)

Quality of goods and services

Environmental factors

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11
Q

What is inflation

A

The sustained increase in the average price level of goods and services

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12
Q

How is inflation measured?

A

A basket of goods of goods and services that an average household will purchase per month

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13
Q

What is CPI

A

Consumer price index. A household basket of 700 goods that an average family would purchase

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14
Q

What is deflation

A

There is a fall in the average price level of goods and services. (percentage falls below zero)

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15
Q

What is disinflation

A

The average price level is still rising but at a lower rate than before.

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16
Q

What is the formula for CPI?

A

cost of basket in year (X) / Cost of basket in base year * 100

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17
Q

Limitations of CPi

A

Ignores regional differences e.g. London inflation may be higher than in Newcastle.

The level of inflation on different goods can vary significantly

Does not capture the quality of the products in the basket

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18
Q

What is RPI

A

Retail price index. Similar to CPI but also includes extra housing costs such as mortgage repayments, building insurance and council tax

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19
Q

What is demand pull inflation

A

Caused by excess demand in the economy

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20
Q

What is SRAS

A

Total supply provided in the economy at a given average price level

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21
Q

What is cost push inflation

A

An increase in the costs of production in an economy

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22
Q

What are the different types of inflation

A

Demand pull

Cost push

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23
Q

What is quantitative easing?

A

Where the central bank purchases securities on the open market so as to increase the money supply.

24
Q

What are the effects of inflation on firms?

A

Uncertainty. Rapid changes in price delay investment.

Menu change costs. Price changes form firms to change their prices too

25
Q

What are the effects of inflation on consumers

A

Decrease in purchasing power

Decrease in the real value of savings

Fall in real income

26
Q

What are the effects of inflation on the government

A

Inflation erodes international competitiveness

Trade offs involved in tackling inflation e.g. increasing unemployment

27
Q

What are the effects of inflation on workers

A

Will demand higher wages

If the percentage increase of wage increase doesn’t meet the rate of inflation then motivation and productivity may fall.

28
Q

What does unemployment refer to

A

Individuals who are not currently employed but are actively seeking and available for work

29
Q

What is the labour force

A

All workers actively working and the unemployed (seeking work)

30
Q

What is the non labour force

A

Those not seeking work e.g. children, pensioners

31
Q

What is the claimant count?

A

Counts the number of people claiming job seekers allowance. Requires claimants to meet regularly with a work coach

32
Q

What is the labour force survey

A

Extensive survey sent to a random sample of 60,000 UK households every quarter. Respondents self-determine if they are unemployed based on the criteria.

33
Q

What is underemployment?

A

People who are currently in work want to work more hours or working a job that requires lower skills than they have.

34
Q

What is cyclical unemployment?

A

Unemployment caused by a fall in AD in an economy which causes firms to lay off workers

35
Q

What is structural unemployment?

A

Unemployment caused by a mismatch between jobs and skills as the structure of an economy changes

36
Q

What is the formula for unemployment rate?

A

Number of people actively seeking work / total labour force *100

37
Q

What is the formula for employment rate

A

Number of people in employment / population of working age *100

38
Q

What is the formula for labor force participation rate

A

Labour force / Total population * 100

39
Q

What is seasonal unemployment?

A

Occurs when certain seasons come to an end and labour is not required e.g. Christmas workers, fruit pickers

40
Q

What is frictional unemployment?

A

Occurs when workers are between jobs (usually short term unemployment)

41
Q

What is real wage unemployment?

A

When wages are inflexible at a point higher than the free market equilibrium.

42
Q

What is minimum wage?

A

The lowest wage that employers can legally pay their employees

43
Q

What is net migration?

A

Difference between inward and outward migration

44
Q

Why is migration important?

A

Immigrants usually fill rolls that local citizens will not as they tend to be low skilled manual labour work.

45
Q

Effects of unemployment on the government

A

Increased spending on benefits
Less tax revenue
Increased spending on retraining

46
Q

Effects of unemployment on the economy

A

Increased crime
Vandalism
Increased anti-social behavior
Increased homelessness

47
Q

Effects of unemployment on firms

A

Loss of sales revenue
Loss of output/ production
Changes the skill level in the economy

48
Q

What is the balance of payments

A

A record of all the financial transactions that occur between a country and the rest of the world

48
Q

Effects of unemployment on individuals

A

Loss of income
Health issues
Mental Instability
Sense of failure
Marital failure
Stress increases
Increase in suicide

49
Q

What are the two main sections of the Balance of Payments

A

The current account
The financial and capital account

50
Q

What does the current account section of the BoP show

A

All transactions related to goods/services along with payments related to the transfer of income. Measures a countries net income

51
Q

What does the financial and capital account section of the BoP show

A

All transactions related to savings, investment and currency stabilisation

52
Q

When does a current account deficit occur

A

The value of outflows is greater than the volume of inflows (imports > exports)

53
Q

When does a current account surplus occur

A

The value of inflows is greater than the value of outflows (imports < exports)

54
Q

What is the UK’s macroecnomic aim relating to the BoP

A

Get the current account to balance as close to equilibrium as possible

55
Q

What is a result of of a current account deficit

A

Aggregate demand decreases causing the government to potentially raise tariffs. This would lead to prices of imported raw materials to increase. Therefore, higher costs of production = higher price of good for consumers.

Reducing current account deficit comes at the expense of increased inflation

56
Q
A

BM macro economics (2 decks)

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