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Theme 2 - Macroeconomics > 2.1 Measures of economic performance > Flashcards

2.1 Measures of economic performance Flashcards

1
Q

What is a trade bloc?

A

An agreement between countries to remove tariff from imported/exported goods.

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2
Q

What is a Tariff?

A

A tax added onto imported and exported goods

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3
Q

What is a market orientated strategy?

A

To increase supply and demand of goods and services to help increase/improve development in an economy.

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4
Q

What is foreign direct investment (FDI)?

A

When foreign private individuals/businesses set up in a country that is not their own.

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5
Q

What is subsidy?

A

A payment from the government to businesses/industries.

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6
Q

What is Gross Domestic Product (GDP)?

A

The total amount of goods and services produced by one economy over a set period.

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7
Q

What are methods of market orientated strategy?

A

Privatisation
Tax Cuts
Trade liberalisation
Policies to increase competition

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8
Q

What is privatisation?

A

The government sell state funded businesses to private individuals.

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9
Q

What are advantages of privatisation?

A

Gov can spend tax elsewhere e.g schools.

Private individuals will be more efficient therefore less wasted resources.

Will need to hire more staff therefore decreasing unemployment meaning more disposable income.

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10
Q

What are tax cuts?

A

Reducing taxes on consumers and firms.

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11
Q

What are some advantages of tax cuts?

A

People have more disposable income

Businesses’ costs decrease meaning they might expand

Business owners get more dividence

Decrease unemployment because business will employ more people thus increasing businesses productivity.

Increases chances of FDI (Foreign direct investment)

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12
Q

What is trade liberalisation?

A

The removal of trade barriers such as tariffs and quotas to help improve trade.

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13
Q

What are some advantages of trade liberalisation?

A

More resources available for business use.

Cheaper products for consumers.

Increased trade

More goods and product range

More exports meaning gov gets more tax

Improved relations with other countries

More FDI

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14
Q

What is a policy to reduce competition?

A

Subsidy’s or removing regulations.

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15
Q

What objectives is the UK economy measured by?

A

Economic growth – want it to be strong

Low inflation – aim is for 2%

Low unemployment

Balance of payments (value of exports - value of imports =0)

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16
Q

How do you calculate GDP?

A

customer spending + Investment (by private firms) + Government + (Exports - Imports)

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17
Q

What are benefits of using GDP to measure living standards?

A

Comparable.
Easy to calculate.
Increase helps show economic growth.

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18
Q

What happens to jobs when GDP is rising?

A

Increase due to higher demand on goods/services and imports/exports.

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19
Q

What happens to spending when GDP is rising?

A

Increases as more goods and services available to buy and people have more disposable income.

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20
Q

What happens to wages when GDP is rising?

A

More money into businesses due to more employees bringing in more revenue so wages might increase.

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21
Q

What happens to borrowing/spending when GDP is rising?

A

People will borrow less and spend more due to more disposable income. However depends on interest, when GDP is high, interest is high to try stop inflation.

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22
Q

What is potential economic growth?

A

An expansion in the productive capacity of the economy.
It is the change in productive potential of the economy over time.

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23
Q

What is actual economic growth?

A

The rate of growth of real GDP within a set period.
It is the percentage change in GDP.

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24
Q

What is nominal GDP?

A

This is when GDP is measured using current prices.
However prices are always rising so we have to take them into account.

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25
What is real GDP?
A value of GDP taking into account the increase of prices.
26
What does per capita mean?
_Per Person.
27
What is the difference between volume and value?
Volume is the quantity/amount. Value is the monetary value.
28
What is the real GDP formula?
(Nominal GDP % Real GDP) x 100
29
What are index numbers?
A way of comparing the value of a variable in one period/location with a base observation.
30
What is the formula for index numbers.
(New price % Old price) x100
31
What is Gross National Income (GNI)?
Helps to reflect incomes received by residents in a country including their net floes of income between countries. Important for countries that have lots of residents working abroad and sending money home to relatives.
32
How does GNI affect different countries? (The country receiving the money and the country that the money is being sent from)
GNI increases for the country receiving the money as there ore income into the economy, therefore increasing their economic growth. GNI decreases for the country that the resident is sending money from because there is less income in the economy.
33
What are advantages of using GNI to compare countries?
Straight forward and relatively easy to calculate. Available in most of the countries throughout the world. GNI is preferred over GDP.
34
What are the strengths and weaknesses of GNI per capita?
Strengths: Takes into account the population size of each country. Widely available for many countries. An agreed international standard. Clearly defined and understood. Weaknesses: Does not take into account the distribution of income. Does not take into account exchange rates. The quality of collecting data across countries could vary.
35
What are some exchange rate problems?
Economists want to compare average incomes. Hard to compare as the value of currency are not always stable. Some currencies are pegged to other currencies such as China and the US. If one appreciates so does the other currency.
36
What is Purchasing Power Parity (PPP) exchange rate?
An exchange rate that is adjusted to reflect the relative purchasing power of incomes in different countries. Measured by collecting the prices for a common basket of goods. Takes into account exchange rates.
37
What are some limitations of using GDP to compare living standards between countries?
Starting position is different between countries. Environmental factors. External shocks – something outside economy's control (war, COVID) Health and education.
38
What is subjective happiness?
Happiness that is based on opinions, everyone’s happiness is different.
39
What is the Easterlin Paradox?
The hypothesis that happiness increases with average incomes, but only up to a certain point.
40
What factors is the UK’s national well-being measured by?
It measures using different factors such as: Relationships Health Education
41
What is inflation?
A sustained rise in the general price level in an economy.
42
What happens if inflation is not controlled?
Firms have higher costs and less profit. People may lose jobs. Currency becomes weaker. Pensions become worthless. Prices rise.
43
What are some causes of inflation?
Demand pull. Cost push. Growth of money supply.
44
What is demand pull inflation?
Inflation increases due to an increase in demand.
45
What is cost push inflation?
When there is a sustained rise in the costs of production.
46
What are some causes for costs of production to rise?
Oil prices. Increase in wages. Increase in VAT. Decrease in exchange rate.
47
What is aggregate supply?
The total amount of goods and services supplied by an economy.
48
What is aggregate demand?
The total amount of goods and services demanded within an economy.
49
How is aggregate demand calculated?
C+I+G+(X-M) (same as GDP)
50
What is unemployment?
People without a job, who want a job, who are actively looking and ready to work within the next two weeks. Or People who are currently out of work, have found a new job and are going to start in the next two weeks.
51
What is a claimant count?
This counted for all the people who was claiming Job Seeker’s Allowance (JSA) .
52
Who did the claimant count exclude?
The count excluded people who were looking for work. Over the age of receiving state pension In full education Or have not paid national insurance in recent years.
53
What does it mean to be economically inactive?
Those people of working age who are not looking for work, for many different reasons.
54
Who are discouraged workers?
Those people who have been unable to find employment and who are no longer looking for work.
55
What is the workforce?
People who are economically active (either in employment or unemployment).
56
What does underemployment mean?
Someone who is under-utilising the workforce. For example: Someone is in part time work, but would like to have a full time job. Someone's skills are not be utilised (University Graduate) Someone is employed but there is not a lot for them to do.
57
What are the 6 types of unemployment?
Demand-deficient unemployment Structural unemployment Frictional unemployment (in between jobs) Seasonal unemployment Voluntary unemployment Real wage inflexibility
58
What is demand-deficient employment?
When the economy is operating below full employment due to a lack of demand in the economy. Cyclical unemployment will occur when there is a fall in demand within an economy – e.g. a recession.
59
What is structural unemployment?
This occurs when there is a change in the structure of the economy, which then leads to a fall in demand for certain jobs or skills associated with them. For example: The UK’s manufacturing industry has shrunk over the last 40 years. Therefore less demand for jobs such as, ship building, coal mining and steel making.
60
What is voluntary unemployment?
This type of unemployment occurs when workers choose not to work at the wage rate. This could be because there is little incentive to work.
61
What is real wage inflexibility?
This occurs when wage rates are above the market equilibrium rate. Minimum wage could have increased or trade unions.
62
How can real wage inflexibility be solved?
The government needs to act to make sure the labour markets work more efficiently. The government should also allow wages to adjust naturally.
63
What is migration?
The movement of people from one country/region to another to benefit from greater economic opportunities than their host country/region.
64
What is involuntary unemployment?
When an individual is willing to accept a job at the going wage rate but is unable to find employment.
65
How can migration have a positive affect on the economy?
If migrants are complimentary to the host nations workers, it can have a positive impact on the economy. If migrants are used as substitutes for the host nations workers, it can have an impact on both the economy and the wage equilibrium.
66
What is globalisation?
The process of increased interconnectedness of individual economies throughout the world.
67
What is balance of payments?
A set of accounts showing the transactions conducted between residents of a country and the rest of the world. Transactions of exports/imports, assets and flows of income. All of these transactions are monitored through the balance of payments.
68
What are the three categories that balance of payments is split into?
Current account Capital account Financial account
69
What is a capital account?
This measures financial transactions which do not impact income, production or savings, such as international transfer of drilling rights, trademarks and copyrights.
70
What is a financial account?
This is an account of financial transactions between a country and the rest of the world.
71
What are the four sections a current account is split into?
Trade in goods – Normally negative. Trade in services – Normally positive. Primary income Secondary income
72
What is primary income?
This is made up by income earnt by UK businesses abroad minus the income made by foreign firms in the UK.
73
What is secondary income (current transfers)?
These are payments by the government or individuals. Payments could be on: Taxes Social contributions Aid Military grants
74
What are 'errors and omissions'?
An amount known as ‘errors and omissions’ is added to the balance of payments to make sure it balances. Balance of payments always have to balance, a deficit on the current account will always be offset by a surplus in the financial and capital accounts. The surpluses show the value of money required to buy the goods and services being imported into the country.
75
What is a deficit?
Deficits would mean that money is flowing out of the economy.
76
What are surpluses?
A current account surplus means an economy is exporting a greater value of goods and services than it is importing.
77
What are problems with having a deficit?
The economy is spending more on imports than it receives for exports. Economists consider what percentage the deficit is relative to GDP. It should be below 5%. Countries/UK should aim to sell more assets, foreign exchange or gold to earn more.
78
How are deficits and surpluses caused?
Exchange rate fluctuations Decrease in the number of trading barriers International competitiveness Economic growth (MPM)

Theme 2 - Macroeconomics (3 decks)

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