2.1) measures of economic performance

Question 1

what are the four main macroeconomic objectives?

Answer 1

• stable economic growth
• stable rate of inflation (+/- 2%
• low levels of unemployment
• stable balance of payments

Question 2

what is gross domestic product (GDP)? how is this calculated?

Answer 2

a measure of all the goods and services produced by a country - national output
- either the volume of goods or their value
- can only be calculated using national output = national expenditure = national income rule

Question 3

what is economic growth? and what are the various phases of the economic cycle?

Answer 3

the speed at which the national output grows over a period of time
- long periods of growth = booms
- negative growth for two consecutive quarters = recession
- sustained economic downturn for a long period = depression

Question 4

how is economic growth measured?

Answer 4

economic growth (%c) = change in GDP / original GDP x 100

Question 5

what is the difference between nominal and real GDP?

Answer 5

• the nominal GDP is the value that has not been adjusted for inflation
• real GDP is the value adjusted for inflation

Question 6

What is GDP per capita?

Answer 6

• indicates the country’s standard of living
• GDP per capita = Total GDP/population
• it is believed that the higher the GDP, the higher the standard of living

Question 7

What is gross national income (GNI)?

Answer 7

• the GDP plus net income from abroad, minus income earned by foreigners on domestic investments

Question 8

What is purchasing power parity?

Answer 8

• the real value of an amount of money in terms of what you can actually buy with it - this can vary between currencies
• this is used because the exchange rate may not reflect the true worth of both currencies
• allows for accurate and easier comparison between GDP per capita

Question 9

What are the limitations of using GDP to make comparisons of economic performance and living standards?

Answer 9

There are several things that GDP fails to take into account:
- extent of the hidden economy - black markets do not appear in official figures
- does not include public spending - one country may spend more money per citizen compared to another with similar GDP
- extent of income inequality - despite similar GDP, there may be a more unequal income distribution between the rich and the poor
- doesn’t include working hours, conditions, spending needs

Question 10

How is inflation calculated?

Answer 10

-

Question 11

What are the limitations of CPI and RPI?

Answer 11

• the RPI excludes all households in the 4% of incomes but the CPI covers a broader range of the population, but it doesn’t include mortgage interest or council tax
• the info given by households in the survey can be inaccurate
• the basket of goods only changes once in a year - so it may miss short term spending habits

Question 12

Why are the RPI and CPI important for government policy?

Question 13

What is unemployment?

Answer 13

• the number of people who are looking for a job but cannot find one
• unemployment rate = number of people out of work / total labour force

Question 14

What is the claimant count?

Answer 14

• the number if people claiming unemployment benefits from the government - includes JSA, universal credit

Question 15

What are the advantages and disadvantages of the claimant count?

Answer 15

Advantages:
- the data is easy to obtain - just count the people claiming job benefits
- no cost - recorded when people apply for benefits

Disadvantages:
- can be manipulated by the government to make it seem smaller
- excludes those that are looking to work but not eligible to claim any benefits or those whose spouses are already doing so

Question 16

What are the advantages and disadvantages of the labour force survey?

Answer 16

Advantages:
- thought to be more accurate than the claimant count the criteria is not as stringent
- internationally agreed measure for unemployment, so it is easier comparisons with other countries

Disadvantages:
- expensive to collect and put together the data
- sample may be unrepresentative of the population as a whole - making the data inaccurate