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Econ Theme 2 > 2.1 Measuring economic performance LS1, 2, 8 + 9 > Flashcards

2.1 Measuring economic performance LS1, 2, 8 + 9 Flashcards

1
Q

Index number formula?

A

(raw number in period/raw number in base period) x 100

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2
Q

Real vs nominal?

A

The nominal value is the actual value whereas the real value has been adjusted for inflation

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3
Q

Price index formula?

A

100 x (nominal/real)

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4
Q

GDP expenditure approach?

A

(Gross Domestic Product)
C + I + G + (X-M)
Consumer spending
Investment
Government expenditure
Net exports (X-M)

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5
Q

GDP definition

A

The value of goods and services produced by an economy in a year

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6
Q

GNI?

A

Gross National Income
GDP + net overseas income (income sent from foreign countries minus income sent to foreign countries)
Takes into account income from overseas and income sent to overseas
(used by World Bank)

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7
Q

Limitations to GDP?

A

Inequality - doesn’t take into account the distribution of wealth
Hidden economy - doesn’t take into account voluntary/unpaid work
Environment - doesn’t take into account the negative affects a growing economy can have on the environment
Differences in hours worked
Quality of goods/services

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8
Q

GNI per capita?

A

GNI/population

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9
Q

GDP per capita?

A

GDP/population

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10
Q

Inflation?

A

An increase in the overall level of prices in an economy

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11
Q

Deflation vs Disinflation?

A

Deflation: negative inflation
Disinflation: a fall in inflation (but still +ve)

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12
Q

Three key economic categories?

A
  • Economically inactive
  • Employed
  • Unemployed
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13
Q

Economically inactive?

A

Those of working age but are not in work or looking for work (students, retired, sick, discouraged workers)

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14
Q

Unemployed?

A

Those who are in the workforce but are without jobs

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15
Q

Measures of unemployment?

A
  • Claimant count: the number of people registered as unemployed and claiming unemployment benefit (JSA)
  • ILO unemployment rate: based on the Labour Force Survey
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16
Q

How does the claimant count measure unemployment rate?

A
  • Measures number of people claiming job seekers allowance (JSA) in the UK
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17
Q

Who does the claimant count exclude and what does this mean for claimant count figure of unemployment?

A
  • People who are unemployed but have a working partner cant seek JSA
  • People under 18 cant seek JSA
  • People with a certain level of savings cant seek JSA
  • So claimant count figure of unemployment often lower than the labour force survey
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18
Q

Differences between claimant count and ILO?

A
  • Claimant count starts at 18, ILO starts at 16-17
  • Stigmatism around claimant count of relying on financial support
  • ILO based on quarterly survey of 60,000 households
  • Claimant count often lower than labour force survey
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19
Q

How does ILO measure unemployment?

A
  • Labour force survey given to random sample of 60,000 UK households
  • To see if they fit their definition of unemployment (ready to work within 2 weeks and have actively looked for work in the last 4 weeks but cannot find a job)
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20
Q

Disadvantages of both ILO and claimant count?

A

Doesnt include:
* Economically inactive
* Voluntarily unemployed
* Hidden economy workers
* Underemployed (working less hours than they wish or jobs that underutilise their skills)

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21
Q

Hyperinflation?

A

Very high rates of inflation as a result of significant increases in the supply of money

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22
Q

What can serious hyperinflation result in?

A

A massive disruption of economic activity
* Businesses stop investing in productive activities and invest instead in assets that maintain their value (gold e.g.)
* Firms withhold goods from sale
* Money loses its value

Also political and social unrest

23
Q

Balance of payments account?

A

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

Split into:
* Current account
* Capital and financial accounts

24
Q

Current account components?

A
  • Trade in goods (or visibles)
  • Trade in services
  • Primary income: money that flows in/out of country as a result of employment or previous investment
  • Secondary income: transfers of money between countries, not for goods/services
25
Q

Current balance?

A

The difference between the value of exports and total imports, added with the balance of trade in goods and services, income and current transfers

26
Q

Current account surplus?

A

When exports are greater than imports, total money flowing into the country is greater than the money flowing out of the country

27
Q

Current account deficit?

A

When imports are greater than exports, total money flowing into the country is less than the money flowing out of the country

28
Q

What is the inflation rate?

A

The change in average price levels in an economy over a given period of time

29
Q

What are the two widely used measures of the price level?

A
  • CPI (consumer price index)
  • RPI (retail price index)
30
Q

Why does the RPI tend to be higher than CPI?

A
  • Diff methods (RPI uses the Carli index to average out different prices)
  • CPI excludes a number of items relating to housing (i.e. mortage interest rate repayments and council tax)
  • RPI covers a different sample of the population than the CPI (RPI excludes top 4% of income earners while CPI covers all households and all incomes)
31
Q

What is the redistribution effect?

A

When certain groups lose purchasing power and become worse off while other groups gain purchasing power and become better off

32
Q

What groups lose from inflation?

A
  • People who receive fixed income/wages (pensioners, landlords etc)
  • People with incomes or wages that increase at a rate slower than inflation
  • Holders of cash
  • Savers
  • Lenders
33
Q

What groups gain from inflation?

A
  • Borrowers
  • Payers of fixed incomes or wages
  • Payers of incomes or wages that increase at a rate slower than the inflation rate
34
Q

How can the inability to predict future inflation lead to lower economic growth?

A

Can lead to uncertainty for firms which can lead to fewer investments which can lead to lower economic growth

35
Q

What are the consequences of inflation?

A
  • Redistributioneffects
  • Uncertainty
  • Menu costs (incurred by firms when they have to print new menus, catalogues, ads etc due to changes in prices)
  • Money illusion (people feel better off than they are due to nominal income increases, can lead consumers to make wrong spending decisions)
  • International (export) competitiveness when the price level increases in one country than in another, its exports become more expensive to foreign buyers, while imports become cheaper => exports decrease, imports increase => difficulties for country’s balance of trade
36
Q

What’s the appropriate rate of inflation?

A

2-3%

37
Q

What are the causes of inflation?

A
  • Demand-pull inflation
  • Cost-push inflation
38
Q

Explain demand-pull inflation

A
  • When AD increases with no increase in AS
  • Caused by excess demand in the economy
  • Also could be caused by growth of the money supply
39
Q

What can cause excessive increases in AD in the UK?

A
  • Consumer spending may rise excessively (low interest rates, high consumer confidence, increasing house prices)
  • Firms may substantially increase their spending on investment
  • Government might be increasing their spending
  • World demand for UK exports could be increasing (boom in global economy)
40
Q

How can growth in the money supply cause inflation?

A
  • Banks influence the amount of borrowing and lending in the economy
  • If banks increase their lending to customers
  • Money supply will grow
  • Customers likely to spend the money they have borrowed
  • Will lead to increased AD
  • Can cause inflation
41
Q

Explain cost-push inflation

A
  • Changes in the supply-side of the economy can also cause inflation
  • Cost-push inflation occurs due to rising costs
42
Q

What can cause rising costs in the economy?

A
  • Wages and salaries
  • Imports
  • Profits (firms can raise profit by raising prices)
  • Government taxes or subsidy removals

Firms will try to pass on increases in costs onto consumers

43
Q

What are the 5 types of unemployment?

A
  • Frictional unemployment
  • Seasonal unemployment
  • Structural unemployment
  • Cyclical/demand deficient unemployment
  • Real wage unemployment
44
Q

Frictional unemployment?

A
  • Short-term unemployment when workers are in between jobs
45
Q

Seasonal unemployment?

A
  • When workers work on a seasonal basis and are unemployed when their work is not in season i.e. tourism industry
46
Q

Structural unemployment?

A
  • When demand for labour is less than its supply in an individual labour market in the economy
  • i.e. regional unemployment (Northern Ireland) and sectoral unemployment (steel)
47
Q

Cyclical/demand deficient unemployment?

A
  • Economies tend to cycle from boom to recession over time
  • Cyclical/demand deficient unemployment occurs when economy is not in boom
  • Have insufficient AD in the economy for all workers (and other factors of production) to be employed
48
Q

Real wage unemployment?

aka Classical unemployment

A
  • Employment that exists when real wages are stuck at a level above than needed to reduce unemployment
  • Employers cant employ workers because cannot afford due to minimum wage OR workers not taking low paid jobs because they earn more in welfare benefits
49
Q

Why is cyclical unemployment different to frictional, seasonal, structural and real wage unemployment?

A
  • Cyclical unemployment caused by a lack of demand in economy
  • Rest are caused by supply-side factors
50
Q

How can migration decrease unemployment in the UK?

A
  • Immigrants to UK more likely to be employed than current population (of working age and come to UK to work)
  • Spending of these workers creates further jobs in UK
51
Q

How can migration increase unemployment in the UK?

A
  • Net inward migration can depress wage rates as supply of labour is increased, reducing equilibrium price of labour, or wages
51
Q

How has the process of globalisation been taking place?

A
  • Proportion of individual economies’ output that is traded internationally is growing
  • Increasing ownership of physical and financial assets
  • Individuals are migrating in increasing numbers
  • Technology is being shared between countries at a faster rate
52
Q

What are governments 4 major macroeconomic objectives?

A
  • Low unemployment, achieving full employment
  • Low and stable inflation, avoiding deflation
  • Economic growth in line with similar economies
  • Balance of payments equilibrium, including current account balance

Econ Theme 2 (5 decks)

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