2.1 Measures of economics performance

Question 1

Define economic growth

Answer 1

In the short run, increase in (real) GDP and in the long run, an improvement in the productive capacity and potential.

Question 2

Define GDP

Answer 2

The total value of the final g/s in an economy

Question 3

Difference between real GDP and nominal GDP

Answer 3

Nominal GDP takes the effects of inflation into account, real doesn’t. (To workout Real GDP, you multiply by the base price)

Question 4

The limitations of using GDP to compare living standards
between countries and over time

Answer 4

doesn’t include unofficial or unpaid work or happiness

Question 5

National Happiness - UK national wellbeing

Question 6

National Happiness: The relationship between real incomes and subjective
happiness

Question 7

Explain GNI - Gross National Income

Answer 7

measures the income earned by citizens operating outside
of the country+the GDP

Question 8

Explain GNP - Gross National Product

Answer 8

Value of goods and services produced by a country over a period of time over a period of time through labour or property supplied by citizens of a country both domestically and overseas

Question 9

Purchasing power parities

Answer 9

An exchange rate

Question 10

Comparing growth

Question 11

Define inflation

Answer 11

the sustained increase in the general price level
[erodes the purchasing power of money]

Question 12

Define defaltion

Answer 12

sustained decrease in the general price level
[indicates a slow down in the growth/output in an economy]

Question 13

Define Disinfaltion

Answer 13

reduction in the rate of inflation
[prices are still rising but not as much]

Question 14

How do you calculate inflation

Answer 14

• CPI
  mathematical (if the level of inflation is 10% how much would £500 be in the following year, 110%x500= £550)

Question 15

What is CPI - Consumer price index

Answer 15

Measures inflation
Measures the household purchasing power from an expenditure survery. The goods are weighted according to how much income is spent on them.
Survey is used, weighted basket of goods, measures the average price change, changes annually

Question 16

Limitations of CPI

Answer 16

• Not totally representative: every household buys different amounts and it doesn’t take into account every single good. - Doesn’t include the price of housing which often rises the most
• Some people argue that all inflation measures give an overestimate, because they don’t take the quality of the good into account

Question 17

What is RPI - Retail price index

Answer 17

RPI is CPI but includes the housing costs. CPI is generally lower than RPI because it takes into account that people switch to a product that has gone up by less. RPI excludes the top 4% of earners because they aren’t ‘average households’

Question 18

2 causes of inflation

Answer 18

Demand pull and cost push

Question 19

Explain Demand Pull and a diagram

Question 20

Explain Cost Push and a diagram

Question 21

Growth of money supply

Question 22

Effects of inflation on consumers

Question 23

Effects of inflation of firms

Question 24

Effects of firms on the govt

Question 25

Define consumption

Question 26

What is disposable income

Question 27

What is MPC - Marginal propensity to consume

Question 28

What are the 4 propensities and their formulae

Answer 28

MPS= change in S/change in Y MPC= change in C/change in Y APS= total S/total Y APC= total C/total Y

Question 29

Influences on consumer spending

Question 30

What is Aggregate Demand [+ formula]

Answer 30

AD= C+I+G+(X-M) The total level of demand in an economy at any given price

Question 31

Difference between movements and shifts

Answer 31

Movements along the curve are caused by a change in the price (caused by de/inflation) Shift in the curve is caused by a change in any other variable

Question 32

Interest rate effect

Question 33

Define unemployed

Answer 33

Someone is unemployed if they are not working but are actively seeking work they are part of the labour force the non-labour force is all those not seeking work (stay at home parents, pensioners, children)

Question 34

Measures of unemployment: Claimant Count

Answer 34

Claimant Count: counts the number if people claiming JSA (job seekers allowance), they have to prove that they are actively looking for work. - not every unemployed person seeks benefits - some people claim benefits whilst being employed

Question 35

Measures of unemployment: ILO

Answer 35

ILO labour force survey: statistical survery sent to 60,000 homes. Asks people if they meet 4 criteria. i.e. ready to work in the next 2 weeks

Question 36

Define/Explain underemployed

Answer 36

someone is underemployed when they can work more hours than they currently work or are working in a job that requires lower skills than they have Underemployment is often a response to cyclical (workers who start in a weak economy are likely to take poor jobs) Underemployment is also a consequence of structural employment (unless workers retrain and gain new skills, it is harder to gain full employment for them)

Question 37

How can employment and unemployment rise at the same time

Answer 37

Increased immigration, which causes the working age population to rise Decreased inactivity rate, as people go from inactive to employed

Question 38

Significance of changes in rates for stakeholders

Question 39

5 causes of unemployment

Answer 39

Structural Seasonal Frictional Real Wage Demand Deficit/Cyclical (sisters suffer from real white dads)

Question 40

Structural unemployment

Answer 40

When the structure of an economy changes (workers replaced by technology/capital) No longer a need for a specific worker If workers aren't retrained or have transferable skills, they remain unemployed.

Question 41

Frictional Unemployment

Answer 41

When workers are between jobs, usually short-term unemployment. Workers have voluntarily left their job to look for another

Question 42

Seasonal Unemployment

Answer 42

When certain seasons have come to an end and specific labour is not required ice cream man, tourism

Question 43

Demand deficit/Cyclical unemployment

Answer 43

Fall in AD in the economy Happens during recessions and slow downs Demand for labour is derived from demand for g/s decreased consumer spending, decreased output, decreased profits, firms lay off workers, rise in U. Also can be caused by increase in productivity, if one worker has higher output, the firm can make other workers redundant as fewer workers are required to make the same quantity

Question 44

Real wage unemployment

Answer 44

when wages are inflexible above the free market equilibrium wage, causing unemployment minimum wage laws, higher wages create an excess of supply in labour, representing RWU [graph]

Question 45

The effects of increased unemployment on stakeholders

Answer 45

Govt: less tax revenue (less income tax being paid) increased spending on benefits (incurring OC) Increased spending on retraining Consumers: less disposable income, lower standard of living, increased crime/homelessness/anti-social behaviour Firms: ^U means they have more supply of labour to choose from, wages fall, reducing costs ~ consumers will have less disposable income, they will stop spending, decreased profit but will spend more on inferior goods, profits rise individual: psychological consequences of losing a job

Question 46

What is the budget deficit

Answer 46

UK Government spending> UK Government revenue (tax receipts).

Question 47

What is the balance of payments

Answer 47

the record of all financial dealings over a period of time between economic agents of one country and all other countries.

Question 48

What is the current account

Answer 48

all transactions related to goods/services along with payments related to the transfer of income

Question 49

Components of the current account

Answer 49

Trade in goods: These are known as visible as we can see physically see them. Difference between the visible exports and Trade in services: invisible trade, a British family going on holiday to Spain would be an example an example of an invisible

Question 50

Current account deficits and surpluses

Answer 50

Deficit: imports>exports (-ve balance) Surplus: exports>imports (+ve balance) The UK government has a macroeconomic aim to get their Current Account balance as close to equilibrium as possible

Question 51

Define trade off

Answer 51

Setting policies to target one objective may complicate the possibility of achieving other objectives

Question 52

The relationship between current account imbalances and other macroeconomic objectives

Answer 52

to correct the CA balance, the govt can raise tariffs, this decreased imports for households. Firms who rely on imported raw materials will have increased COP. These are likely to be passed on to the consumers in the form of higher prices. Reducing the CA imbalance can come at the expense of increased inflation in the economy

Question 53

The inter-connectedness of economies through international trade

Answer 53

one country's imports are another country's exports. Covid and the Ukraine war shows how disruptions in one part of the world cause widespread problems in other parts producers all over the world are often highly dependent on imported raw materials, showing a high level of interconnectedness. (i.e. a car)