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Macro > 2.1 Measures of Economic Performance > Flashcards

2.1 Measures of Economic Performance Flashcards

1
Q

What is economic growth?

A

The rate of change of output, indicating an increase in the long-term productive potential of a country.

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2
Q

How is economic growth typically measured?

A

By the percentage change in real GDP per annum.

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3
Q

What does GDP stand for?

A

Gross Domestic Product.

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4
Q

What is GDP?

A

The total value of goods and services produced in a country within a year.

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5
Q

What does GDP per capita represent?

A

Total GDP divided by the number of people in a country.

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6
Q

What is the difference between real GDP and nominal GDP?

A

Real GDP strips out the effects of inflation, while nominal GDP does not.

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7
Q

Define Gross National Income (GNI).

A

The value of goods and services produced by a country plus net overseas interest payments and dividends.

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8
Q

What does Gross National Product (GNP) measure?

A

The value of goods and services produced by citizens of a country, both domestically and overseas.

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9
Q

What is Purchasing Power Parity (PPP)?

A

An exchange rate that compares how much a typical basket of goods in a country costs compared to another country.

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10
Q

True or False: GDP can accurately reflect the standard of living in every country.

A

False.

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11
Q

What are some problems with using GDP to compare living standards?

A
  • Inaccuracy of data
  • Inequalities in income distribution
  • Quality of goods and services not reflected
  • Currency comparison issues
  • Expenditure types affecting GDP
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12
Q

What are the six key factors found in the UN happiness report?

A
  • Real GDP per capita
  • Health
  • Life expectancy
  • Having someone to count on
  • Perceived freedom to make life choices
  • Freedom from corruption
  • Generosity
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13
Q

What is inflation?

A

The general increase of prices in the economy, eroding the purchasing power of money.

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14
Q

What is deflation?

A

The fall of prices indicating a slowdown in the rate of growth of output.

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15
Q

What is disinflation?

A

A reduction in the rate of inflation, where prices are still rising but not as rapidly.

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16
Q

How is the Consumer Price Index (CPI) calculated?

A

By collecting prices on 710 goods and services from 20,000 shops and updating prices monthly.

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17
Q

What is a limitation of the CPI?

A

It does not include the price of housing, which may result in underestimating inflation.

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18
Q

How does the Retail Price Index (RPI) differ from CPI?

A

RPI includes housing costs, while CPI does not.

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19
Q

Fill in the blank: An increase in GDP may not reflect an increase in _______.

A

[living standards].

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20
Q

What is the Easterlin Paradox?

A

The observation that happiness and income are positively related at low incomes but not at higher income levels.

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21
Q

What does the Measuring National Wellbeing report focus on?

A

Self-reported health, relationship status, and employment status.

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22
Q

What is the impact of increased consumption of material goods on happiness?

A

It increases happiness if basic needs aren’t met, but does not increase long-term happiness once needs are satisfied.

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23
Q

What are the key questions asked in the UK Measuring National Wellbeing report?

A
  • Life satisfaction
  • Anxiety
  • Happiness
  • Worthwhileness
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24
Q

What is the Retail Price Index (RPI)?

A

The RPI is a measure of inflation that includes housing costs such as mortgage payments and council tax, unlike the CPI.

RPI is no longer considered the best method for measuring inflation and has had its national statistic status removed.

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25
What are the key differences between RPI and CPI?
* RPI includes housing costs, CPI does not * CPI accounts for consumer behavior changes when prices rise, making it generally lower than RPI * RPI excludes the top 4% of income earners and low-income pensioners, while CPI includes all households and incomes
26
What is demand-pull inflation?
Inflation caused by an increase in aggregate demand (AD), leading to higher prices as demand outstrips supply. ## Footnote Factors increasing AD can lead to inflation.
27
What is cost-push inflation?
Inflation that occurs when the aggregate supply decreases, causing businesses to raise prices to maintain profit margins due to increased costs. ## Footnote This can happen due to various factors affecting supply.
28
What causes inflation related to the money supply?
Too much money in the economy can lead to inflation if the supply of goods and services does not increase correspondingly. ## Footnote Government actions like printing more money or increasing borrowing can also increase the money supply.
29
How does inflation affect consumers?
* Decreased purchasing power if incomes do not rise with inflation * Debtors benefit as they repay loans with less valuable money * Savers lose out as their savings diminish in value * Psychological impact may reduce consumer spending
30
What are the effects of inflation on firms?
* Higher prices make British goods less competitive internationally * Difficulty in planning due to unpredictable inflation/deflation * Costs incurred from changing prices on menus and labels
31
What impact does inflation have on governments?
* Real revenue falls if excise taxes are not adjusted for inflation * Real income may rise if personal income tax allowances are not adjusted * Potential for reduced taxpayer disposable income
32
What is frictional unemployment?
Unemployment occurring when individuals are temporarily between jobs, often due to new entrants to the labor market or voluntary job changes. ## Footnote This type is generally short-term.
33
What is structural unemployment?
Long-term unemployment resulting from a decline in demand in an industry, often requiring retraining for affected workers. ## Footnote This can be due to international competition, technology changes, or lack of mobility.
34
What is seasonal unemployment?
Unemployment that occurs due to seasonal variations in demand for certain jobs, such as in tourism. ## Footnote This type is common and difficult to prevent in a free market economy.
35
What is cyclical unemployment?
Unemployment resulting from a general lack of demand for goods and services, often during economic downturns. ## Footnote Also referred to as Keynesian 'demand deficient' unemployment.
36
What is underemployment?
A situation where individuals work in jobs that do not utilize their skills or prefer part-time work when they want full-time. ## Footnote Underemployment is not included in official unemployment statistics.
37
What is the Claimant Count?
A measure of unemployment that counts the number of people receiving benefits for being unemployed, updated monthly. ## Footnote It provides a snapshot of claimants but may not reflect the full unemployment picture.
38
What is the Labour Force Survey (LFS)?
A survey that classifies individuals as employed, unemployed, or inactive based on ILO definitions, using a sample of households. ## Footnote The LFS provides estimates and may not capture all unemployment accurately.
39
What is the activity/participation rate?
The percentage of the working-age population that is economically active (employed or unemployed).
40
What is the unemployment rate?
The percentage of the economically active population that is unemployed.
41
What is real wage inflexibility?
Unemployment caused by wages being set above market-clearing levels, leading to an excess supply of labor. ## Footnote This can prevent workers from finding jobs if they are unwilling to accept lower wages.
42
How does migration impact employment?
Increased net inward migration can create jobs and increase total employment, but may also lead to lower wages in low-skilled jobs. ## Footnote Immigrants often fill lower-skilled positions and contribute to the economy.
43
What is the significance of skills in the labor market?
A lack of or mismatched skills can lead to structural unemployment, necessitating government intervention or training programs. ## Footnote Higher skill levels are increasingly required in modern economies.
44
What are the psychological effects of unemployment on workers?
Unemployed individuals may face stigma, stress, and mental health issues, leading to a decline in living standards and potential social issues.
45
What is a potential solution for filling job shortages?
Migrant workers may fill these shortages if their skills fit.
46
What is a common impact of unemployment on workers?
Loss of income leading to a decline in living standards.
47
How does unemployment affect the mental health of individuals?
It can lead to stress, marital breakdown, suicide, and physical illness.
48
What challenges do long-term unemployed individuals face?
They often find it more difficult to get another job as they lose skills.
49
What effect does unemployment have on job security for currently employed workers?
Lower job security and fear of redundancy.
50
How can unemployment affect firms?
Decrease in demand for goods and potential fall in profit.
51
What is the relationship between long-term unemployment and employability?
Long-term unemployment can lead to loss of skills and reduced employability.
52
How does high unemployment impact consumers in local areas?
Local shopping centres may be run down, leading to less choice and decreased quality of goods.
53
What financial impact does unemployment have on the government?
Reduced income resulting in a fall in tax revenues and higher welfare spending.
54
What social issues are linked to rising unemployment?
Social deprivation, increased crime, and social dislocation.
55
What is the balance of payments?
A record of all financial dealings over a period of time between economic agents of one country and all other countries.
56
What are the two main components of the balance of payments?
The current account and the capital and financial account.
57
What does the current account record?
Payments for the purchase and sale of goods and services.
58
What are 'visibles' in the context of the current account?
Goods that are traded and can be physically seen, such as raw materials or finished goods.
59
What are 'invisibles' in the current account?
Services traded in or out of the country.
60
What is the balance of trade?
The difference between visible exports and visible imports.
61
What are primary and secondary incomes in the current account?
Primary income is from loans of factors of production abroad, while secondary income is mainly government transfers.
62
What indicates a current account surplus?
Exports are greater than imports, leading to a positive current balance.
63
What indicates a current account deficit?
Imports are greater than exports, leading to a negative current balance.
64
What are the four main macroeconomic objectives of governments?
* Low unemployment * Low and stable inflation * Economic growth * Balance of payment equilibrium
65
How can high economic growth affect the current account?
It tends to lead to a current account deficit due to increased imports from higher demand.
66
What is export-led growth?
Economic growth driven by increasing exports, which can improve employment and the current account balance.
67
What are the four key ways that have led to globalisation?
* Increasing trade output * Ownership of foreign assets * Migration * Technology sharing
68
What is the theoretical expectation for current balances between countries?
All current balances should add up to zero.

Macro (11 decks)

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