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Macroeconomics > 2.1 Measures of economics performance > Flashcards

2.1 Measures of economics performance Flashcards

1
Q

Define economic growth

A

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

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2
Q

Define GDP

A

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

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3
Q

Difference between real GDP and nominal GDP

A

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

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4
Q

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

A

doesn’t include unofficial or unpaid work or happiness

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5
Q

National Happiness - UK national wellbeing

A
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6
Q

National Happiness: The relationship between real incomes and subjective
happiness

A
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7
Q

Explain GNI - Gross National Income

A

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

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8
Q

Explain GNP - Gross National Product

A

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

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9
Q

Purchasing power parities

A

An exchange rate

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10
Q

Comparing growth

A
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11
Q

Define inflation

A

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

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12
Q

Define defaltion

A

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

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13
Q

Define Disinfaltion

A

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

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14
Q

How do you calculate inflation

A
  • CPI
    mathematical (if the level of inflation is 10% how much would £500 be in the following year, 110%x500= £550)
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15
Q

What is CPI - Consumer price index

A

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

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16
Q

Limitations of CPI

A
  • 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
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17
Q

What is RPI - Retail price index

A

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’

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18
Q

2 causes of inflation

A

Demand pull and cost push

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19
Q

Explain Demand Pull and a diagram

A
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20
Q

Explain Cost Push and a diagram

A
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21
Q

Growth of money supply

A
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22
Q

Effects of inflation on consumers

A
23
Q

Effects of inflation of firms

A
24
Q

Effects of firms on the govt

A
25
Q

Define consumption

A
26
Q

What is disposable income

A
27
Q

What is MPC - Marginal propensity to consume

A
28
Q

What are the 4 propensities and their formulae

A

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

29
Q

Influences on consumer spending

A
30
Q

What is Aggregate Demand [+ formula]

A

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

31
Q

Difference between movements and shifts

A

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

32
Q

Interest rate effect

A
33
Q

Define unemployed

A

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)

34
Q

Measures of unemployment: Claimant Count

A

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
35
Q

Measures of unemployment: ILO

A

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

36
Q

Define/Explain underemployed

A

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)

37
Q

How can employment and unemployment rise at the same time

A

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

38
Q

Significance of changes in rates for stakeholders

A
39
Q

5 causes of unemployment

A

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

40
Q

Structural unemployment

A

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.

41
Q

Frictional Unemployment

A

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

42
Q

Seasonal Unemployment

A

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

43
Q

Demand deficit/Cyclical unemployment

A

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

44
Q

Real wage unemployment

A

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]

45
Q

The effects of increased unemployment on stakeholders

A

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

46
Q

What is the budget deficit

A

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

47
Q

What is the balance of payments

A

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

48
Q

What is the current account

A

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

49
Q

Components of the current account

A

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

50
Q

Current account deficits and surpluses

A

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

51
Q

Define trade off

A

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

52
Q

The relationship between current account imbalances and other macroeconomic objectives

A

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

53
Q

The inter-connectedness of economies through
international trade

A

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)

Macroeconomics (11 decks)

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