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Macro-Economics Theme 2 > 2.1 Measures of Performance > Flashcards

2.1 Measures of Performance Flashcards

1
Q

Gross Domestic Product

A

The market value of all final goods and services produced in a country in a time period

One of the key measures of economic performance is GDP
Measured every quarter (3 months)

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2
Q

Measuring GDP formula

A

GDP = C + I + G + NX

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3
Q

Circular Flow of income

A

Model showing the operation of an economy and the flow of income and goods/services between different components of an economy

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4
Q

Circular Flow of income: Households

A

Receive income through wages and salaries from their jobs and investments and buy goods and services supplied by firms

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5
Q

Circular Flow of income: Businesses

A

Hire land, labour and capital when making products to then pay wages and rent. Firms receive payment from consumers.

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6
Q

Circular Flow of income: Government

A

Collect taxes to fund spending on public services (Leakages)
Also spend as state spending (Injections)

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7
Q

Circular Flow of income: External Sector

A

The UK imports from other countries (M) and overseas businesses and consumers buy UK products (Exports- X)

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8
Q

Nominal GDP

A

GDP given without taking inflation into account

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9
Q

Real GDP

A

GDP given taking inflation into account

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10
Q

Purchasing Power Parity

A

Economists take a basket of goods and see how expensive they are in each country

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11
Q

Issues with GDP: The Black Market

A

The shadow economy refers to money earned from illicit activities like prostitution and the sale of illegal drugs, avoids tax

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12
Q

Issues with GDP: Non Market activities

A

GDP missing home production and voluntary work:
Caring for a relative
Volunteering for a charity
Growing food on your garden
Chores in the house

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13
Q

Issues with GDP: Environmental Factors

A

GDP is poor at recognising external costs like pollution, congestion and global warming

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14
Q

Issues with GDP: Happiness and Well-Being

A

GDP makes no adjustment for happiness, which should take into account how hard people work, stress and impact on family life

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15
Q

Issues with GDP: Stability of Growth

A

GDP does not measure sustainability of growth, a country may achieve a temporarily high GDP by over-exploiting natural resources by misallocating investment

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16
Q

Issues with GDP: Balance of GDP

A

Some countries large amounts of GDP may be spent on arms industry while others may spend money on health and education

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17
Q

Inflation

A

When the avg price of goods and services is rising over a period of time

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18
Q

Deflation

A

Negative Inflation, when avg prices are falling over time

19
Q

Disinflation

A

Occurs when inflation is slowing down- prices are still rising but at a slower rate

20
Q

How is inflation measured?

A

Gov measures inflation by tracking the prices of a typical basket of goods every month
Called the consumer price index (CPI)

21
Q

Limitations of CPI

A

The CPI is not representative of everyone- inaccurate for the ‘non typical’ household
New products- Slow to respond to new products
Changing quality of goods and services- Prices may rise for a good reason

22
Q

Demand Pull inflation

A

Caused by excess aggregate demand

23
Q

Cost push inflation

A

Rising costs mean that the selling prices increase

24
Q

Money Supply

A

If the supply of money is increased then the prices will
This happens when gov prints money to pay for goods and services

25
Q

Internal causes of inflation

A

A large surge in property prices
Lower wages/ labour costs
Boom in credit/ Money supply
Rise in VAT

26
Q

External causes of inflation

A

Increase in world oil/ gas prices
Inflation in global commodity prices
Depreciation of the exchange rate
Lower inflation in other countries

27
Q

Why is High inflation an Economic Problem?

A

Falling real incomes- Workers worse off if wage increase is less
Cost of borrowing increases
Risks of wage inflation- leads to rising labour costs and lower profits
Business competitiveness
Business Uncertainty

28
Q

Winners from high inflation

A

Workers with strong wage bargaining power
Borrowers if real interest rates are negative
Producers if price rise faster than costs

29
Q

Losers from high inflation

A

Retired on fixed incomes
Lenders if real interest rates are negative
Savers if real returns are negative
Workers in low paid jobs

30
Q

Real interest rates formula

A

Real interest rates = Nominal Interest Rates- Inflation Rate

31
Q

Unemployment

A

When you are able, available and willing to work and are actively seeking work- but not employed

32
Q

Labour force

A

The total of all active population, both employed and unemployed

33
Q

Unemployment rate

A

The no. unemployed as a percentage of the labour force

34
Q

Potential labour supply

A

The total amount of people who are able to work

35
Q

Claimant Count

A

The no. people claiming the jobseekers allowance

36
Q

Labour force Survey

A

Measures the total unemployment

37
Q

Economic Costs of unemployment for businesses

A

Fall in demand for goods and services
Reduction in sales/ profits
Depends on whether good is normal or inferior

38
Q

Economic Costs of unemployment for government

A

Increased spending on unemployment benefits
Fall in revenue from income tax and VAT
Fall in corporation taxes
May lead to a greater budget deficit

39
Q

Economic Costs of unemployment for economy as a whole

A

Lost output from people being out of work
Some of the long term unemployed may never become employed again
Increase in the inequality

40
Q

Trade

A

Involves the buying and selling goods and services with other countries

41
Q

Imports

A

The purchase of goods and services from abroad

42
Q

Exports

A

The sale of goods and services to buyers in other countries

43
Q

Balance of Payments

A

A record of transactions between one country and rest of the world. Records exports and imports as well as transfers of income and assets.

Macro-Economics Theme 2 (5 decks)

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