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Theme 2 - UK Economy, Performance and Economy > 2.1 Mesaures of Economic Performance > Flashcards

2.1 Mesaures of Economic Performance Flashcards

1
Q

What is Economic growth ?

A

Economic growth occurs when there is a rise in the value of Gross Domestic product ( GDP ).

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2
Q

What is the difference between real GDP and Nominal GDP ?

A

Real GDP is adjusted for inflation, whereas nominal GDP is the value of GDP without being adjusted for inflation.

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3
Q

What is total GDP ?

A

The combined monetary value of all goods and services produced within a country’s borders during a specific time period.

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4
Q

What is GDP per Capita ? And what does it measure ?

A

The value of the total GDP divided by the population of the country - essentially measures the average output per person in an economy.

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5
Q

What are are the two ways economists measure National income ?

A

Gross National product ( GNP )
Gross National Income ( GNI )

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6
Q

What is GNP ?

A

Gross National product - GDP plus net income from abroad.

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7
Q

What is GNI ?

A

GNI included the total income earned by a county’s residents and businesses, both domestically and abroad.

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8
Q

Exactly how is GNI different to GDP ?

A

It is a broader measure than GDP and considers income earned from overseas investments and remittances.

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9
Q

What is the difference between the volume and value of GDP ?

A

The volume of GDP is adjusted for inflation - it is the size of the basket of goods and real level of GDP.
The value of GDP is the monetary value of GDP at prices of the day - nominal figure.

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10
Q

How do you calculate the the value of GDP ?

A

Volume x current price level

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11
Q

What are purchasing power parities ?

A

Exchange rates that equalize the purchasing power for different currencies for a common basket of goods.

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12
Q

Why are PPPs helpful ?

A

They account for price differences between countries and facilitate meaningful international comparisons.

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13
Q

What are the limitations of GDP ?

A
  • Income Distribution: GDP per capita does not account for income inequality, and a high GDP may conceal disparities in living standards.
  • Non-Market Activities: GDP excludes non-market activities like household labor and informal economies, leading to an incomplete picture of living standards.
  • Quality of Life: GDP does not measure factors such as healthcare, education, environmental quality, and overall well-being.
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14
Q

What is the relationship between real incomes and subjective happiness ?

A

Research suggests that while higher incomes are associated with increased happiness up to a point, the relationship between income and happiness diminishes beyond a certain income level.

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15
Q

What does the UN happiness report find are the six factors that affect national happiness ?

A
  • Real GDP per Capita
  • health
  • Life expectancy
  • Having someone to count on
  • percieved freedom to make life choices
  • Generousity
  • freedom from corruption
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16
Q

What does the World happiness report rank countries on ?

A

Income
Social support
Life expectancy
Freedom to make life choices
Trust
Generosity

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17
Q

What is inflation ?

A

Inflation refers to the sustained increase in the general price level of goods and services in an economy over time.

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18
Q

Why is inflation a bad thing ?

A

It leads to a decrease in the purchasing power of money.

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19
Q

What is deflation ?

A

Deflation is the opposite of inflation, characterized by a sustained decrease in the general price level.

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20
Q

Why is deflation a positive thing ?

A

It increases the purchasing power of money.

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21
Q

Why is deflation also a negative thing ?

A

It can discourage spending and investment.

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22
Q

What is disinflation ?

A

Disinflation occurs when the rate of inflation declines but remains positive.
Prices are still rising, but at a slower rate than before.

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23
Q

How is inflation calculated in the UK ?

A

This is done using the Consumer price index, it measures household purchasing power with the Family Expenditure survey.

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24
Q

What is the Family Expenditure Survey ?

A

A survey which finds out what consumers spend their income on to create a basket of goods.

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25
Q

What are the key points in the CPI process ?

A

A survey is used to create a basket of goods.
The items are weighted according to how much income is spent on them.
The average price change of those goods is measured.
This is done once a year / updated annually.

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26
Q

What are the Limitations of CPI ?

A
  • Different demographics have different spending patterns.
  • Different families have different expenditure.
  • CPI is slow to respond to new goods and sevices.
  • It does not account for quality improvements in goods and services over time.
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27
Q

What limitation of CPI caused overestimation of inflation ?

A

CPI assumes constant consumption patterns, whereas consumers often adjust their purchases in response to changing prices.
This can lead to an overestimation of inflation.

28
Q

What does RPI stand for ?

A

Retail Price index

29
Q

What is the main difference between RPI and CPI ?

A

Unlike CPI, RPI included housing costs, such as payments on mortgage interest and council tax, that why RPI tends to have a higher value than CPI.

30
Q

What people does RPI exclude from its calculation ?

A

Top 4% of earners and low income pensioners.

31
Q

What does CPI take into account that RPI does not ?

A

CPI takes into account the fact that people may switch products that have less of a price increase.

32
Q

What are the two causes of inflation ?

A

Demand pull inflation

Cost push inflation

33
Q

What is demand pull inflation ?

A

Demand-pull inflation occurs when aggregate demand exceeds aggregate supply, leading to upward pressure on prices.

34
Q

What factors lead to demand pull inflation ?

A

Factors like
- increased consumer spending,
- business investment,
- Depreciation of interest rates increasing exports
- Government expenditure
Essentially anything that increases AD components.

35
Q

What is cost push inflation

A

Cost-push inflation arises when production costs increase, causing firms to raise prices to maintain profitability.

36
Q

What factors can cause cost push inflation ?

A

Factors like
- rising raw material prices,
- higher wages,
- supply chain disruptions
- Monopolies
-expectations of inflation
- Indirect taxes passed onto customers.

37
Q

What is the final cause of inflation ?

A

Growth of money supply

38
Q

Why does growth of money supply lead to inflation ?

A

An increase in the money supply is not matched by a corresponding increase in economic output and so can lead to excess demand for goods and services and result in inflation.

39
Q

What is the effect of inflation on consumers ?

A
  • Inflation erodes the purchasing power of money, reducing the real value of savings.
  • Fixed-income earners may experience reduced real incomes.
  • People on fixed pensions may find it more challenging to maintain their standard of living.
40
Q

What is the effect of inflation on firms ?

A
  • Firms may face rising production costs, reducing profit margins. ( workers may demand higher wages ).
  • They may adjust prices upward to maintain profitability.
  • Reduced investment
41
Q

What is the effect of inflation on the government ?

A
  • The government will have to increase that value of state pension and welfare payments because the cost of living is increasing.
  • Tax brackets may not be adjusted for inflation, resulting in “bracket creep” and higher tax burdens.
42
Q

What is the effect of inflation on workers ?

A
  • While workers may see nominal wage increases, their real wages may decline due to inflation.
  • Labor unions may negotiate for higher wages to keep pace with rising prices.
  • if firms face higher costs, there could be redundancies when firms try and cut thier costs.
43
Q

What are the two measures of unemployment ?

A

Claimant count

International Labour organisation ( ILO ) and Uk labour force survey

44
Q

How does the Claimant count measure unemployment ?

A

This counts the number of people claiming unemployment related benefits, such as the job seeker’s allowance ( JSA ) - only includes those actively seeking work and receiving government benefits.

45
Q

Give an evaluation of the claimant court

A
  • Not every unemployed person is eligible or bothers to claim JSA
  • Those with partners on a high income are not eligible for the benefit even when unemployed.
46
Q

What is the LFS ( Labour force survey )?

A

A survey carried out by the international Labour organisation ( ILO ).

47
Q

What is the critirea for the LFS ?

A
  • been out of work for 4 weeks
  • able and willing to start working within 2 weeks
  • Part time unemployment is included.

Essentially provides a more broader picture of unemployment.

48
Q

What is the distinction between unemployment and under-employment ?

A

Unemployment refers to individuals who are not currently employed but are actively seeking and available for work.
Under-employment occurs when individuals are employed but their job does not fully utilize their skills and qualifications. This can result in part-time work, low wages, or jobs below their skill level.

49
Q

What is the employment and unemployment rate ?

A

Employment Rate: Measures the proportion of the working-age population in employment. A rising employment rate indicates economic growth.

Unemployment Rate: Measures the proportion of the labor force actively seeking work. A high unemployment rate indicates economic problems.

50
Q

What is the inactivity rate of unemployment ?

A

This measures the proportion of the working-age population that is not in the labor force. It can indicate a lack of job opportunities or demographic factors.

51
Q

What are the causes of unemployment ?

A

Structural Unemployment

Seasonal Unemployment

Demand Deficiency (Cyclical) Unemployment

Real Wage Inflexibility

Frictional Unemployment

52
Q

What is structural umployement ?

A

Occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs. Workers do not have transferable skills to move to another industry.

53
Q

What is structural unemployment worsened by ?

A

Geographical and occupational immobility of Labour.

54
Q

What two things contribute to structural unemployment ?

A

Globalisation : production moving overseas for lower labour costs.

Technological change : workers begin to be replaced by technology.

55
Q

What is frictional unemployment ?

A

Temporary unemployment when individuals are between jobs or entering the workforce.

56
Q

Which type of employment means that is it rare to get 100% employment ?

A

frictional unemployment : there will always be people moving between jobs.

57
Q

What is seasonal unemployment ?

A

Certain points in the year / Linked to seasonal variations in demand, e.g. tourism or agriculture.

58
Q

What is demand deficiency / cyclical unemployment ?

A

Unemployment rising from a lack of aggregate demand during economic downturns. ( periods of economic decline or recessions ). Meaning increased redundancies.

59
Q

What is another cause of demand deficiency ?

A

Increased production, which means each worker can produce a higher output and so fewer workers are needed to produce the same quantity of goods and services.

60
Q

What is real wage inflexibility ?

A

When wages are too high, leading to job cuts or an unwillingness to hire. ( wages above market equilibrium )

61
Q

What do classical economists argue for about real wage flexibility ?

A

By letting wages be flexible, by removing trade unions and removing the minimum price, wages could fall and unemployment would fall to 0.

62
Q

What are the impacts of migration on employment and unemployment ?

A
  • Filling in labour gaps which may lead to wage pressures.
  • Create a more skilled workforce
63
Q

What are the effect of employment on consumers, society and workers ?

A

Consumers: Reduced income can lead to lower consumer spending, impacting businesses.

Workers: Lost income, reduced job prospects, and psychological stress.

Society: Social unrest, reduced well-being, and inequality.

64
Q

What are the effects of unemployment on firms and the government ?

A

Government: Increased spending on unemployment benefits and lost tax revenue, social issues.

Firms: High unemployment can lead to a larger labor pool, potentially reducing wage pressures.

65
Q

What is the impact of falling unemployment on consumers ?

A

Lower standard of living for consumers due to low consumption and widening income inequality gap.

66
Q

What is the impact of rising unemployment ?

A
  • Increased spending ( more welfare ).
  • Low tax revenue combined with higher expenditure means a widening fiscal debt.

Theme 2 - UK Economy, Performance and Economy (3 decks)

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