2.1 measures of economic performance and policies

Question 1

when does economic growth occur?

Answer 1

when there is a rise in the value of GDP

Question 2

what does GDP measure?

Answer 2

the quantity of goods and services produced in an economy

Question 3

what does higher economic output lead to?

Answer 3

-higher standard of living
-more employment opportunities

Question 4

what is real GDP?

Answer 4

the value of GDP adjusted for inflation

Question 5

what is nominal GDP?

Answer 5

the value of GDP without being adjusted for inflation
-can be misleading as it may make GDP seem higher than it actually is

Question 6

what is total GDP?

Answer 6

the total monetary value of all goods and services produced within a country during a specific time period

Question 7

what is GDP per capita?

Answer 7

the value of total GDP divided by the population of the country

Question 8

what is volume of GDP?

Answer 8

-adjusted for inflation
-it is the size of the basket of goods and the real level of GDP

Question 9

what is the value of GDP?

Answer 9

-the monetary value of GDP
-nominal figure
-volume x current price level

Question 10

how can national income be measured?

Answer 10

-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)

Question 11

what is purchasing power parity?

Answer 11

-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

Question 12

formula for measuring GDP

Answer 12

GDP = C + I + G + X - M

Question 13

limitations of using GDP

Answer 13

-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

Question 14

what are the six factors affecting national well being according to the UN happiness report?

Answer 14

-real GDP per capita
-health
-life expectancy
-having someone to count on
-perceived freedom to make life choices
-freedom from corruption and generosity

Question 15

what is inflation?

Answer 15

the sustained rise in the general price level over time

Question 16

what is deflation?

Answer 16

the average price level in an economy falls, negative inflation rate

Question 17

what is disinflation?

Answer 17

-the falling rate of inflation, where average price level is still increasing but at a slower rate

Question 18

calculating inflation rate

Answer 18

-consumer prices index
-a survey is used
-weighted basket of goods
-measured average price change of goods
-updates annually

Question 19

limitations of CPI

Answer 19

-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

Question 20

retail price index (RPI)

Answer 20

-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

Question 21

causes of inflation

Answer 21

-demand pull inflation
-cost push inflation
-money supply

Question 22

demand pull definition

Answer 22

when aggregate demand rises, putting pressure on resources, therefore producers increase their prices

Question 23

cost push definition

Answer 23

when supplies become more expensive for the firm so they push up their prices for the consumer

Question 24

growth of money supply definition

Answer 24

bank of england print off more money, so more money flowing in the economy
-causing hyperinflation

Question 25

effects of inflation on consumers

Answer 25

-save more, consume less as interest rates are high -purchasing power of money falls

Question 26

effects of inflation on firms

Answer 26

-less likely to invest as interest rates are high -less price competitive on a global scale -reduced business confidence

Question 27

effects of inflation on government

Answer 27

-will have to increase the value of state pension as cost of living is increasing

Question 28

effects of inflation on workers

Answer 28

-less disposable income -firms may make more people redundant to cut costs

Question 29

measures of unemployment

Answer 29

-the claimant count -the labour force survey

Question 30

what is the claimant count

Answer 30

-counts the number of people claiming unemployment benefits and they have to prove they are actively looking for work

Question 31

evaluating claimant count

Answer 31

-not every unemployed person is eligible for job seekers allowance -those with partners on high incomes are not eligible even though they are unemployed

Question 32

labour force survey criteria

Answer 32

-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

Question 33

differnce between unemployed and underemployed

Answer 33

-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

Question 34

inactivity

Answer 34

-those who are not actively looking for jobs e.g the elderly, disabled or children

Question 35

structural unemployment

Answer 35

-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

Question 36

frictional unemployment

Answer 36

-the time between leaving a job and looking for another job

Question 37

seasonal unemployment

Answer 37

-occurs during certain points in a year, usually around summer and winter -during summer more people will be employed in the tourist industry

Question 38

cyclical unemployment

Answer 38

-lack of demand for goods and services, usually occurs in periods of economic decline or recessions

Question 39

significance of migration and skills for employment and unemployment

Answer 39

-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

Question 40

exports

Answer 40

goods and services sold to foreign countries and are positive in the balance of payments as they are an inflow of money

Question 41

imports

Answer 41

goods and services brought from foreign countries and are negative on the bops as they are an outflow of money

Question 42

what is the balance of payments made up of

Answer 42

-the current account -the capital account -the official financing account

Question 43

what is a current account surplus

Answer 43

-there is a net inflow of money into the circular flow of income, the uk has a surplus with services but deficit of goods

Question 44

what are the governments macroeconomic objectives

Answer 44

-full employment -low, stable inflation -a sustainable current account on the balance of payments -sustainable economic growth