2.1 Measures of Economic Performance Flashcards
Budget deficit
Gov spending > gov receipts (like taxation)
Budget surplus
Gov receipts > gov spending
More saved than spent
What are the 2 ways inflation is measured in the Uk?
Consumer price index (CPI)
Retail Prices Index (RPI)
CPI vs RPI
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
How is CPI measured?
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
Indexation
adjusts economic variables, like wages and taxes when anticipated inflation happens
Underemployment
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
How is unemployment measured?
Monthly survey of the population
Counting number of people who claim benefits
measured on a certain day a month, e.g the 30th
Short vs long unemployment
Without work for less than a year = short
Over a year = long
What are the 4 types of unemployment?
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
Hidden unemployed
Population who would take a job if offered, but are not in work
Underemployed count for this also
Frictional unemployment
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
Seasonal unemployment
Construction and tourist workers tend to work on a seasonal basis
so may be unemployed for, say Winter
regional unemployment
regions can be at full employment, leaving the rest isolated unemployed
sectoral unemployment
sectors in the economy may shrink, like a steel company, leaving people unemployed
classical unemployment
same as real wage unemployment
when wages get too high for firms to run, so they don’t hire, leaving people unemployed
Cyclical unemployment
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
What does cyclical employment do to LRAS-AD diagrams?
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’
The current account
Where payments for buying and selling are recorded
what is the balance of payments account 2 components?
the current account
capital and financial assets
Earnings trap
when a low income worker gets paid a tiny bit more, or even less due to more taxes and less benifits
Unemployment trap
when a worker is a little or worse off by getting a job instead of benefits
Improving labour market flexibility benefits
Supply and demand responds quicker to external changes in labour market
lower unemployment
Types of labour market flexibility
geographical flexibility
external numerical flexibility
internal numerical flexibility
functional flexibility
wage flexibility
geographical flexibility
willingness of workers to move area to get a job
if housing is too expensive where jobs are needed, theres less incentive to work
external numerical flexibility
ability of firms to adjust workforce for their needs
eg sacking workers may be hard
internal numerical flexibility
ability of firms to adjust working hours of staff
eg using zero hour contracts so they are flexible
functional flexibility
when a firm can redeploy a worker from one job to another
worker has to be multi-skilled
costs of training will be needed
wage flexibility
where firms can adjust wages reacting to demand in labour market
Disinflation
a decrease in the rate of inflation
What are the 3 limitations of using CPI to measure inflation?
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
