2.1 (Measures of Economic performance)

Question 1

define economic growth

Answer 1

The increase in GDP in a period of time.

Question 2

define GDP and GDP per capita

Answer 2

GDP=The total value of goods and services produced in a country in a given time period.

GDP per capita= GDP divided by the population, or in other words, how much does every person in a country earn on average.

Question 3

what is the difference between real and nominal?

Answer 3

real is adjusted for inflation, whereas nominal is not adjusted for inflation

Question 4

define GNI

Answer 4

Gross National Income (GNI) is a measure of the total economic output of a country

Question 5

what is the difference between subjective and objective?

Answer 5

.subjective= Subjective aspects in economics depend on individual or group preferences, perceptions, and values. They are influenced by emotions, experiences, and personal judgment.

.objective=Objective aspects in economics rely on measurable, observable, and verifiable data or evidence. They are independent of individual opinions or feelings.

Question 6

define purchasing power parities (PPP)

Answer 6

Purchasing Power Parities (PPPs) are exchange rates that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries. In other words, they show how much of a currency is needed in one country to buy the same goods and services as in another country.

Question 7

define Inflation

Answer 7

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.

Question 8

define deflation

Answer 8

Deflation is a sustained decrease in the general price level of goods and services in an economy over a period of time.

Question 9

define disinflation

Answer 9

Disinflation is a slowdown in the rate of inflation. It means that prices are still rising, but at a slower pace than before. Unlike deflation, where prices fall outright, disinflation indicates a reduction in the rate of price increases.

Question 10

how can inflation be measured?

Answer 10

.basket of goods=A “basket” is a collection of commonly purchased goods and services, such as food, clothing, housing, transportation, and healthcare. It represents what an average household buys.

.Consumer price index=The CPI measures the average change in prices paid by households for a specific basket of goods and services.

Question 11

what are the limitations of CPI?

Answer 11

1.Excludes Certain Groups
What it means: CPI is designed to reflect the spending habits of urban households.
CPI issue: It doesn’t account for rural populations, certain demographic groups, or the very wealthy, making it less representative for these groups.

2. Substitution Bias
   What it means: When prices of certain goods rise, consumers may switch to cheaper alternatives. For example, if beef becomes expensive, they might buy chicken instead.
   CPI issue: The CPI assumes a fixed basket of goods and doesn’t account for this substitution, which can overstate the cost of living.

Question 12

what are the 3 causes of inflation?

Answer 12

.demand pull= occurs when aggregate demand (AD) in the economy exceeds aggregate supply (AS), leading to upward pressure on prices.

.cost push= occurs when the cost of production increases, causing firms to raise their prices to maintain profit margins.

.growth of the money supply= refers to when the central bank or government increases the amount of money circulating in the economy. This can lead to inflation if there is too much money chasing too few goods.

Question 13

define unemployment

Answer 13

when you are willing and able to work, but you cannot find a job.

Question 14

how can unemployment be measured?

Answer 14

.claimant count= is a measure of unemployment based on the number of people who are claiming unemployment benefits, specifically Jobseeker’s Allowance (JSA) or other welfare payments, such as Universal Credit in the UK.

.labour force survey=is a survey that asks people about their employment status. It counts as unemployed anyone who is not working, is actively looking for work, and is available to start work soon. It gives a broader and more accurate picture of unemployment compared to other methods, as it includes people who might not be claiming unemployment benefits but are still searching for a job.

Question 15

define under-employment

Answer 15

definition=occurs when people are working fewer hours than they would like or in jobs that don’t fully use their skills and qualifications.

Question 16

state and define the 4 types of unemployment?

Answer 16

.structural unemployment= unemployment that occurs when there is a long-term decline in demand for a particular industry or skill.

.seasonal unemployment= Unemployment that occurs at certain times of the year due to the seasonal nature of certain industries or jobs.

.cyclical unemployment= Unemployment that results from a downturn in the business cycle, where reduced demand for goods and services leads to job losses.

.frictional unemployment= Short-term unemployment that occurs when people are between jobs or entering the workforce for the first time.

Question 17

define real wage inflexibility

Answer 17

definition= refers to the situation where wages (adjusted for inflation) do not easily adjust in response to changes in labour market conditions, such as demand and supply shifts.

Question 18

define balance of payments

Answer 18

Balance of Payments (BOP) is a record of all economic transactions between the residents of a country and the rest of the world over a specific period

Question 19

define current account

Answer 19

The Current Account is a section of a country’s Balance of Payments that records all transactions related to the exchange of goods, services, income, and current transfers between the country and the rest of the world. It includes:

-Trade balance (exports and imports of goods and services),
-Income (earnings from investments and wages),
-Current transfers (e.g., remittances and foreign aid).

Question 20

what is a current account surplus and deficit?

Answer 20

. surplus= A current account surplus occurs when a country’s exports of goods, services, income, and transfers are greater than its imports. Essentially, the country is earning more from abroad than it is spending.

.deficit= A current account deficit occurs when a country’s imports of goods, services, income, and transfers exceed its exports. In other words, the country is spending more on foreign goods, services, and income than it is earning from abroad.

Question 21

define The Balance of Payments on the Current Account

Answer 21

The Balance of Payments on the Current Account records a country’s trade in goods and services, net income flows (such as wages and investment income), and current transfers (like foreign aid or remittances) with the rest of the world over a specific period. It shows whether a country is a net lender (surplus) or net borrower (deficit) in international transactions.