2.1 measures of economic performance and policies Flashcards
when does economic growth occur?
when there is a rise in the value of GDP
what does GDP measure?
the quantity of goods and services produced in an economy
what does higher economic output lead to?
-higher standard of living
-more employment opportunities
what is real GDP?
the value of GDP adjusted for inflation
what is nominal GDP?
the value of GDP without being adjusted for inflation
-can be misleading as it may make GDP seem higher than it actually is
what is total GDP?
the total monetary value of all goods and services produced within a country during a specific time period
what is GDP per capita?
the value of total GDP divided by the population of the country
what is volume of GDP?
-adjusted for inflation
-it is the size of the basket of goods and the real level of GDP
what is the value of GDP?
-the monetary value of GDP
-nominal figure
-volume x current price level
how can national income be measured?
-GNP (market value of all products produced in a year of all citizens of one country)
-GNI (the sun of value added by all producers who reside in a nation plus overseas interest and dividends)
what is purchasing power parity?
-a theory that estimates how much the exchange rate needs adjusting so that an exchange rate between countries is equivalent
-e.g £1 may equal $1.28
formula for measuring GDP
GDP = C + I + G + X - M
limitations of using GDP
-does not give any indication to the distribution of income
-may need to be recalculated in terms of purchasing power
-large hidden economies like the black market
-gives no indication of welfare
what are the six factors affecting national well being according to the UN happiness report?
-real GDP per capita
-health
-life expectancy
-having someone to count on
-perceived freedom to make life choices
-freedom from corruption and generosity
what is inflation?
the sustained rise in the general price level over time
what is deflation?
the average price level in an economy falls, negative inflation rate
what is disinflation?
-the falling rate of inflation, where average price level is still increasing but at a slower rate
calculating inflation rate
-consumer prices index
-a survey is used
-weighted basket of goods
-measured average price change of goods
-updates annually
limitations of CPI
-not representative of everyone, not everyone buys the same things
-slow to respond to new goods and services
-changing quality of goods and services may effect price
retail price index (RPI)
-alternative measure of inflation
-includes housing costs like mortgage interest and council tax
-excludes top 4% and low income pensioners
-doesn’t take into account that when prices rise people switch products
causes of inflation
-demand pull inflation
-cost push inflation
-money supply
demand pull definition
when aggregate demand rises, putting pressure on resources, therefore producers increase their prices
cost push definition
when supplies become more expensive for the firm so they push up their prices for the consumer
growth of money supply definition
bank of england print off more money, so more money flowing in the economy
-causing hyperinflation
effects of inflation on consumers
-save more, consume less as interest rates are high
-purchasing power of money falls
effects of inflation on firms
-less likely to invest as interest rates are high
-less price competitive on a global scale
-reduced business confidence
effects of inflation on government
-will have to increase the value of state pension as cost of living is increasing
effects of inflation on workers
-less disposable income
-firms may make more people redundant to cut costs
measures of unemployment
-the claimant count
-the labour force survey
what is the claimant count
-counts the number of people claiming unemployment benefits and they have to prove they are actively looking for work
evaluating claimant count
-not every unemployed person is eligible for job seekers allowance
-those with partners on high incomes are not eligible even though they are unemployed
labour force survey criteria
-been out of work for 4 weeks
-able and willing to start work in 2 weeks
-workers should be available for 1 hour per week including part time
differnce between unemployed and underemployed
-unemployed are those able and willing to work but not employed. actively seeking work and looking to start within the next two weeks
-underemployed are those who have a job but their labour is not used to its full productive potential
inactivity
-those who are not actively looking for jobs e.g the elderly, disabled or children
structural unemployment
-caused by a long term decline in demand for goods and services in a particular industry
-workers don’t have transferable skills to move to another industry
frictional unemployment
-the time between leaving a job and looking for another job
seasonal unemployment
-occurs during certain points in a year, usually around summer and winter
-during summer more people will be employed in the tourist industry
cyclical unemployment
-lack of demand for goods and services, usually occurs in periods of economic decline or recessions
significance of migration and skills for employment and unemployment
-usually of working age and looking for a job so the supply of labour is likely to increase
-tend to bring high quality skills to the domestic workforce which increases productivity and skill set of the labour market
-high skilled work force is more employable
exports
goods and services sold to foreign countries and are positive in the balance of payments as they are an inflow of money
imports
goods and services brought from foreign countries and are negative on the bops as they are an outflow of money
what is the balance of payments made up of
-the current account
-the capital account
-the official financing account
what is a current account surplus
-there is a net inflow of money into the circular flow of income, the uk has a surplus with services but deficit of goods
what are the governments macroeconomic objectives
-full employment
-low, stable inflation
-a sustainable current account on the balance of payments
-sustainable economic growth
