2.1 measures of economic performance Flashcards
GDP
gross domestic product - the total value of all goods and services produced within a country over a specific period (measure of economic performance)
GDP limitations
- does not reflect well-being/quality of life as a higher GDP does not necessarily mean better healthcare, education, happiness
- ignores informal/unpaid work such as household labour or volunteer services so not included in GDP despite its economic value
real and nominal
real - adjusted for inflation
nominal - current value
GNI
gross national income - GDP plus income from abroad
UK national wellbeing
ONS conducts large-scale surveys asking people directly about their well-being/happiness
index number formula
new price/ base year price x 100
inflation
the general increase of prices in the economy
deflation
the general decrease in the price of goods and services (negative inflation)
disinflation
the reduction in the rate of inflation (prices still rising but at a slower rate)
causes of inflation
- demand-pull inflation (demand for goods/services is greater than supply increasing prices)
- cost-push inflation (cost of production increases increasing prices)
effects of inflation
Consumers: less disposable income if income doesn’t also rise leading to decrease in living standards
Firms: costs of production increase, change prices of g/s
Government: decreased spending on public services but increased benefits spending so opportunity costs
Workers: demand for higher wages due to rising costs
CPI
consumer price index - a measure of how much the prices of consumer goods and services change over time (measure of inflation)
CPI limitations
- basket of goods is updated only once a year and tastes/preferences change very frequently so the basket may not reflect these new items so may be inaccurate representation
- CPI excludes housing costs like mortgage repayments which can be a major expense for homeowners however the CPIH index includes housing costs so more representative
monetary policy
the process by which a central bank (e.g., the Bank of England) manages interest rates and money supply to control inflation, economic growth, and employment
employment
measures the number of people in paid work
underemployment
working below skill level or part-time when full-time is desired
unemployment
measures people without a job but have been actively seeking work within the last 4 weeks
economically inactive
people aged 16+ without a job who have not sought out work in the last 4 weeks (eg: retired, disabled)
seasonal unemployment
arises in seasons of the year when demand is low
frictional unemployment
caused by workers who are between jobs (when seeking a better job)
structural unemployment
caused by a lack of suitable skills for jobs available
cyclical unemployment
low demand for workers due to a lack of demand for goods/services generally rising during recessions
effects of unemployment
Consumers: less spending
Firms: lower demand
Government: increased benefits, lower tax revenue
Society: increased inequality
balance of payments
an account that shows the economic transactions conducted between a country’s residents and the rest of the world
the current account
a record of a country’s imports and exports of goods and services, payments of income and transfers between residents and overseas
current account surplus
where exports are greater than imports so the current balance is positive
current account deficit
where imports are greater than exports so the current balance is negative
exports
selling goods/services to buyers overseas (eg: the UK exports financial services overseas)
imports
buying goods/services from producers overseas (eg: the UK imports clothes from Asia)
interest rates
cost of borrowing and reward of saving
productivity
output per worker (efficiency)
recession
a period of negative economic growth identified by a fall in GDP in two consecutive quarters
exchange rate
the value of one currency in terms of another
