2.1 measures of economic performance - definitions

Question 1

Gross Domestic Product (GDP)

Answer 1

The total value of goods and services produced in an economy over a period of time.

Question 2

Economic Growth

Answer 2

The rate of increase of actual real GDP or an increase in the productive capacity of the economy.

Question 3

GNI

Answer 3

The Gross Domestic Product plus the NET income earned abroad.

Question 4

Nominal values

Answer 4

The value of an economic variable based on current prices – prices today, which takes no account of changing prices over time.

Question 5

Real values

Answer 5

The value of an economic variable taking account of changing prices over time.

Question 6

GDP or GNI per capita

Answer 6

GDP or the GNI of a country divided by its population: the GDP/GNI per person.

Question 7

Purchasing Power Parity

Answer 7

Adjusting GDP or other variables to reflect how much the local currency actually buys you, or the purchasing power of the country.

Question 8

Real incomes

Answer 8

Incomes after rising prices (inflation) is taken into account.

Question 9

Subjective wellbeing

Answer 9

How happy or content people feel, based on your own personal judgment.

Question 10

Inflation

Answer 10

A rise in the overall or average price level. Calculated as the % change in the CPI or RPI over a year. Target of 2% per year.

Question 11

Deflation

Answer 11

When the overall price level falls instead of rises. This would be expressed as a negative inflation number, e.g. -2%

Question 12

Disinflation

Answer 12

When the rate of inflation falls – but it is still positive. Prices are still rising, but at a slower rate.

Question 13

Consumer Price Index

Answer 13

A measure of the average level of prices in the UK, based on a representative ‘basket’ used by the Government and Bank of England

Question 14

Household Consumption Expenditure Survey.

Answer 14

The first survey you need to calculate CPI inflation. You need a ‘representative basket of goods and services’. Government does a survey of nearly 7000 households’ spending habits.

Question 15

Weightings

Answer 15

Goods or services that people spend a lot of their money on will have a higher weighting. E.G., Electricity bills and housing cots will have a large weighting

Question 16

Demand -Pull

Answer 16

Inflation that is caused by a rise in Aggregate Demand. People are spending more and firms might not be able to increase production quickly enough (‘Bottlenecks’).

Question 17

Cost-Push

Answer 17

Inflation caused by rising costs. Higher costs will make it harder for firms to produce. Costs could get passed on to consumers as higher prices, so inflation rises.

Question 18

Claimant Count

Answer 18

The number of people claiming benefits for unemployment - the Jobseeker’s Allowance or JSA in the UK.

Question 19

Labour Force Survey (ILO)

Answer 19

An interview-based survey of about 60,000 households. It includes all people over 16 and is a better measure than the claimant count.

Question 20

Underemployment

Answer 20

Where someone does not have as much work as they would ideally like or working in a job that does not use your skill level.

Question 21

Economic Inactivity

Answer 21

People who are of working age but are NOT currently seeking work for a variety of reasons (childcare, retirement, full-time study). If you are economically inactive you are NOT part of the workforce,

Question 22

Structural unemployment

Answer 22

Unemployment caused by the changing structure of the economy. For example when a country like Britain loses jobs in manufacturing

Question 23

Cyclical unemployment

Answer 23

Unemployment that is caused by the economic cycle. When you have a negative output gap, AD is falling, there is spare capacity and so there is not enough demand to create enough jobs.

Question 24

Seasonal unemployment

Answer 24

Unemployment at different points in the year. For example when unemployment rises in a tourist destination during the winter months.

Question 25

Frictional unemployment

Answer 25

Unemployment caused by people moving between one job and another. It isn’t a necessarily a problem - people need to move jobs, so it is a sign of a healthy labour market.

Question 26

Discouraged workers

Answer 26

People who have been unable to find work for a very long time, so they have stopped looking. They become economically inactive, so they may not show up on unemployment measures.

Question 27

Balance of Payments
(B of P)

Answer 27

A set of accounts showing the transactions between residents of a country and the rest of the world – sets out exports, imports and flows of money.

Question 28

Current Account

Answer 28

a) the value of imports and exports of goods and services b) net income payments received from/paid to abroad and c) government transfers (international aid or money we pay to the European Union).

Question 29

Financial Account

Answer 29

The Financial Account includes any trade of Foreign Exchange reserves as well as the buying and selling of assets held in different countries.

Question 30

Balance of Trade

Answer 30

Just the value of exports minus value of imports of physical goods as well as invisible services.