2.1 Measures of Economic Performance

Question 1

Budget deficit

Answer 1

Gov spending > gov receipts (like taxation)

Question 2

Budget surplus

Answer 2

Gov receipts > gov spending
More saved than spent

Question 3

What are the 2 ways inflation is measured in the Uk?

Answer 3

Consumer price index (CPI)
Retail Prices Index (RPI)

Question 4

CPI vs RPI

Answer 4

CPI - the main measure - used geometric measure, but RPI uses more arithmetic measure
RPI - the alternative measure -look at housing costs, like council tax, morgage, but CPI don’t

Question 5

How is CPI measured?

Answer 5

basket of goods, around 650 are measured for increased price
Weights are added
Index numbers are generated, base year being 100
This is repeated monthly

Question 6

Indexation

Answer 6

adjusts economic variables, like wages and taxes when anticipated inflation happens

Question 7

Underemployment

Answer 7

someone who could be producing more than capable of
So if they want to work longer hours, or their job don’t reflect their skills

Question 8

How is unemployment measured?

Answer 8

Monthly survey of the population
Counting number of people who claim benefits
measured on a certain day a month, e.g the 30th

Question 9

Short vs long unemployment

Answer 9

Without work for less than a year = short
Over a year = long

Question 10

What are the 4 types of unemployment?

Answer 10

Frictional unemployment
Seasonal unemployment
Structural unemployment
Cyclical unemployment

All frictional, seasonal, and structural are supply side factors
but cyclical is caused by lack of demand

Question 11

Hidden unemployed

Answer 11

Population who would take a job if offered, but are not in work
Underemployed count for this also

Question 12

Frictional unemployment

Answer 12

Workers who loose their jobs but quickly find new ones
Short term unemployment factor
E.g construction workers may be out for a bit whilst waiting for next job

Question 13

Seasonal unemployment

Answer 13

Construction and tourist workers tend to work on a seasonal basis
so may be unemployed for, say Winter

Question 14

regional unemployment

Answer 14

regions can be at full employment, leaving the rest isolated unemployed

Question 15

sectoral unemployment

Answer 15

sectors in the economy may shrink, like a steel company, leaving people unemployed

Question 16

classical unemployment

Answer 16

same as real wage unemployment
when wages get too high for firms to run, so they don’t hire, leaving people unemployed

Question 17

Cyclical unemployment

Answer 17

When economy is not booming, economic growth is less leading to demand-deficient unemployment
So theres insufficient AD for workers to get a job in recessions and decreases of growth

Question 18

What does cyclical employment do to LRAS-AD diagrams?

Answer 18

If theres cyclical unemployment, theres a lack of demand, so it will not be in equilibrium with SRAS and LRAS.
Also shows on a PPF, as it won’t be on the productive potential curve
supply-side employment can still occur at ‘Full Employment’

Question 19

The current account

Answer 19

Where payments for buying and selling are recorded

Question 20

what is the balance of payments account 2 components?

Answer 20

the current account
capital and financial assets

Question 21

Earnings trap

Answer 21

when a low income worker gets paid a tiny bit more, or even less due to more taxes and less benifits

Question 22

Unemployment trap

Answer 22

when a worker is a little or worse off by getting a job instead of benefits

Question 23

Improving labour market flexibility benefits

Answer 23

Supply and demand responds quicker to external changes in labour market
lower unemployment

Question 24

Types of labour market flexibility

Answer 24

geographical flexibility
external numerical flexibility
internal numerical flexibility
functional flexibility
wage flexibility

Question 25

geographical flexibility

Answer 25

willingness of workers to move area to get a job
if housing is too expensive where jobs are needed, theres less incentive to work

Question 26

external numerical flexibility

Answer 26

ability of firms to adjust workforce for their needs
eg sacking workers may be hard

Question 27

internal numerical flexibility

Answer 27

ability of firms to adjust working hours of staff
eg using zero hour contracts so they are flexible

Question 28

functional flexibility

Answer 28

when a firm can redeploy a worker from one job to another
worker has to be multi-skilled
costs of training will be needed

Question 29

wage flexibility

Answer 29

where firms can adjust wages reacting to demand in labour market

Question 30

Disinflation

Answer 30

a decrease in the rate of inflation

Question 31

What are the 3 limitations of using CPI to measure inflation?

Answer 31

Substitution Bias
- due to fixed baskets, consumers changing habits take a while to be taken into consideration

Quality adjustment instead of price adjustment

Consumer representation
- CPI is based on urban consumers, not reflecting all groups like rural and specific demographic groups