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Macroeconomics > 2.1 Measures of economic performance > Flashcards

2.1 Measures of economic performance Flashcards

2.1.1 - 2.1.4

1
Q

What is economic growth?

A

The increase in a countries real GDP over time

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2
Q

What does economic growth signify?

A

The expansion of an economies production capacity and overall economic health

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3
Q

How do you measure economic growth?

A

Percentage change in real GDP over a specific period

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4
Q

What is the formula for growth rate

A

[(GDP at time 2 - GDP at time 1) / GDP at time 1] x 100

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5
Q

What is the difference between nominal and real values

A

Real: Adjusted for inflation
Nominal: Not adjusted for inflation

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6
Q

What is the difference between Total and Per capita

A

Total: Represents the aggregate sum of a variable
Per Capita: Represents the average amount per person

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7
Q

What is the difference between Value and Volume

A

Value: Represents the monetary worth of goods and services
Volume: Measures the physical quantity of goods and services

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8
Q

What is GNI?

A

Gross national income: includes the total income earned by a country’s residents and businesses

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9
Q

What is the difference between GNI and GDP

A

GNI includes foreign income while GDP measures domestic production

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10
Q

Benefits of comparing growth rates between countries

A
  • Helps assess relative economic performance
  • Reveals disparities in in development
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11
Q

Benefits of comparing growth rates over time

A
  • Reveals economic patterns and trends
  • Identifies periods of economic expansion, recession or stagnation
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12
Q

What is economic expansion

A

When a country’s economy grows, increasing output.

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13
Q

What is a recession

A

A significant economic decline in activity and output over 2 quarters

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14
Q

What is stagnation

A

A period of little or no economic growth.

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15
Q

What is does PPP stand for and what is it

A

Purchasing power parities: The exchange rate needed to buy the same quantity of products in each country

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16
Q

What is the use of PPP-adjusted figures in international comparisons

A
  • Allows for more accurate comparisons of economic indicators like GDP and income across nations.
  • Reflects what people can buy with their money showing standard of living and economic productivity
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17
Q

What are the limitations of using GDP to compare living standards

A
  • Income distribution: doesn’t account for income inequality
  • Non-market activities: excludes activities like hold labour and informal economies
  • Quality of life: GDP doesn’t measure factors like healthcare and well-being
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18
Q

What is UK National Wellbeing

A

Measures overall life quality, including health, relationships, and satisfaction, beyond traditional economic indicators like GDP.

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19
Q

What is the Easterlin paradox?

A

Debates on if a country’s per capita income leads to increased happiness or life satisfaction among its citizens.

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20
Q

What is inflation?

A

An increase in the general price level of goods and services

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21
Q

What is deflation?

A

A decrease in the general price level

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22
Q

What is disinflation?

A

Decrease in the rate of inflation

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23
Q

How is inflation measured in the UK

A

CPI

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24
Q

What is the UK’s target inflation rate?

A

2% (flexibility of -1/+1)

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25
Q

Who is responsible for controlling inflation

A

The bank of England

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26
Q

How do you calculate CPI inflation?

A

[(Current CPI - Previous CPI) / Previous CPI] × 100

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27
Q

What are the limitations of CPI

A
  • CPI assumes consumption patterns leading to overestimation
  • Doesn’t account to quality improvements
  • Excludes non-market transactions
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28
Q

What is an alternative measure of inflation and how is it different to CPI

A

RPI: it includes housing costs

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29
Q

What is demand pull inflation

A

As aggregate demand increases prices for these goods and services increase

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30
Q

What is cost push inflation

A

As more money is put into production the price of the the good and service also increases

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31
Q

What factors can contribute to demand-pull inflation

A
  • Consumer spending
  • Business investment
  • Government expenditure
32
Q

What factors can contribute to cost push inflation

A
  • Raw material prices
  • Higher wages
  • Supply chain disruptions (interrupting the flow of goods and services)
33
Q

What is meant by a ‘growth of the money supply’

A

An increase in the money supply, without a similar rise in economic output, can create excessive demand for goods and services, leading to inflation.

34
Q

What is the effect of inflation on consumers

A
  • Erodes purchasing power of money reducing the real value of savings
  • Increased cost of living
  • Uncertainty in spending a=causing consumers to delay purchases
35
Q

What is the effect of inflation on firms

A
  • Higher production costs reducing profit margins
  • Prices may be increase for consumers to maintain profit
  • Employees may demand for more increasing labour costs
36
Q

What is the effect of inflation on the government

A
  • If inflation rises, interest rates often follow increasing borrowing costs
  • Inflation can raise the cost of managing government debt, reducing funds available for other public spending needs.
37
Q

What is the effect of inflation on workers

A
  • While workers may see nominal wage increases, their real wages may decline due to inflation.
  • Labour unions may negotiate for higher wages to keep pace with rising prices.
38
Q

What is employment

A

The proportion of the working age population that is working

39
Q

How many people were employed in 2021

A

34 million

40
Q

What is the working age population

A

16-64

41
Q

What is Claimant count?

A

A measure of unemployment based on the number of people who are claiming unemployment-related benefits,

42
Q

What is ILO

A

International Labour Organisation: defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.

43
Q

What is unemployment

A

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

44
Q

How many people were unemployed in 2021

A

1.6 million

45
Q

What is underemployment

A

Are employed but their job does not fully utilize their skills and qualifications or are seeking more hours

46
Q

What does employment rate measure and what does it indicate

A

The proportion of the working-age population in employment

47
Q

What does unemployment rate measure

A

The proportion of the labour force actively seeking work

48
Q

What does inactivity rate measure

A

The proportion of the working-age population that is not in the labour force.

49
Q

What is the labour force

A

All those who are able and willing to work

50
Q

What is structural unemployment

A

Mismatch between the skills of the workforce and the requirements of available jobs.

51
Q

What is frictional unemployment

A

Temporary unemployment during transitions between jobs or career changes

52
Q

What is seasonal unemployment

A

Temporary job loss due to seasonal changes in labour demand

53
Q

What is cyclical unemployment

A

Joblessness caused by reduced demand for goods.

54
Q

What is geographic unemployment

A

Joblessness caused by workers’ relocation to areas with fewer jobs

55
Q

What is real wage inflexibility

A

When wages are too high, leading to job cuts or an unwillingness to hire

56
Q

How does migration and skills impact employment

A
  • Migrants can fill labour shortages
  • Provide a variety of skills and expertise
57
Q

How does unemployment affect consumers

A

Reduced income can lead to lower consumer spending, impacting businesses

58
Q

How does unemployment affect firms

A
  • High unemployment increases the number of available workers, which can lower wages therefore
  • When unemployment is high, consumer spending is lower, which can reduce a business’s revenue
59
Q

How does unemployment affect workers

A
  • Lost income
  • Skill deterioration
  • Psychological stress
60
Q

How does unemployment effect governments

A

Less income tax is payed -> therefore reduces the government spening

61
Q

How does unemployment effect society

A
  • Pushes people into poverty
  • Increased crime rates
  • Affects quality of life
62
Q

What is balance of payments

A

A record of all financial transactions between a country’s economic agents and other countries over time.

63
Q

What is the current account?

A

The main measure of external trade performance

64
Q

What is the current account split into

A
  • Trade in goods
  • Trade in services
  • Income transfers
  • Current transfers
65
Q

What is a current account deficit

A

When a country’s imports of goods, services, income, and transfers exceed its exports

66
Q

What is a current account surplus

A

When a country’s exports of goods, services, income and transfers exceed its imports

67
Q

Give an example of a country with a current account deficit

A

US

68
Q

Give an example of a country with a current account surplus

A

Germany

69
Q

How does current account imbalances affect inflation

A

A depreciating currency, often due to a trade deficit, means that the currency loses value against others. This makes imported goods more expensive since businesses need to spend more of their currency to buy the same products from abroad.

70
Q

How does current account imbalances affect employment (surplus)

A

Surplus: Boosts job creation in industries focused on exports, such as manufacturing or agriculture → these industries need more workers to produce goods for foreign markets

71
Q

How does current account imbalances affect employment (deficit)

A

This can hurt domestic industries that compete with imports, leading to job losses → If cheaper foreign products enter the market local companies find it harder to compete → causes layoffs

72
Q

How does current account imbalances affect economic growth (surplus)

A

Can increase savings and investment, which helps boost economic growth.

73
Q

How does current account imbalances affect economic growth (deficit)

A

Long-term trade deficit may result in excessive borrowing, which is not sustainable

74
Q

How does current account imbalances affect exchange rates

A

Persistent current account deficit can cause a country’s currency to lose value → exports become cheaper for foreign buyers and boosting demand for them → reduces the deficit
2. imports become more expensive → leads to consumers buying more local products instead → corrects the deficit

75
Q

Example of Interconnectedness of economies through international trade

A

One country’s economic policies and developments can have ripple effects globally
Example: The 2008 financial crisis in the United States had global repercussions, as it led to reduced demand for imports from other countries, affecting their economic growth.

76
Q

One disadvantage of the Interconnectedness of economies through international trade

A

Supply chain integration: Many products involve components from multiple countries. Disruptions in one country can disrupt global supply chains. Example: COVID-19 pandemic disrupted supply chains worldwide, affecting industries from electronics to pharmaceuticals.

77
Q

One advantage of the Interconnectedness of economies through international trade

A

Allows countries to specialize in producing what they are most efficient at,
Example: Switzerland specializes in the production of high-quality watches, benefiting from a strong reputation in the global market.

Macroeconomics (3 decks)

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