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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 ( consumers and business wait for price to continue dropping before buying good and services.

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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
What are the key points in the CPI process ?
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.
26
What are the Limitations of CPI ?
- 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.
27
What limitation of CPI causes overestimation of inflation ?
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
What does RPI stand for ?
Retail Price index
29
What is the main difference between RPI and CPI ?
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
What people does RPI exclude from its calculation ?
Top 4% of earners and low income pensioners.
31
What does CPI take into account that RPI does not ?
CPI takes into account the fact that people may switch products that have less of a price increase.
32
What are the two causes of inflation ?
Demand pull inflation Cost push inflation
33
What is demand pull inflation ?
Demand-pull inflation occurs when aggregate demand exceeds aggregate supply, leading to upward pressure on prices.
34
What factors lead to demand pull inflation ?
Factors like - increased consumer spending, - business investment, - Depreciation of interest rates increasing exports - Government expenditure Essentially anything that increases AD components.
35
What is cost push inflation
Cost-push inflation arises when production costs increase, causing firms to raise prices to maintain profitability.
36
What factors can cause cost push inflation ?
Factors like - rising raw material prices, - higher wages, - supply chain disruptions - Monopolies -expectations of inflation - Indirect taxes passed onto customers.
37
What is the final cause of inflation ?
Growth of money supply
38
Why does growth of money supply lead to inflation ?
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
What is the effect of inflation on consumers ?
- 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
What is the effect of inflation on firms ?
- 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
What is the effect of inflation on the government ?
- 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
What is the effect of inflation on workers ?
- 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
What are the two measures of unemployment ?
Claimant count International Labour organisation ( ILO ) and Uk labour force survey
44
How does the Claimant count measure unemployment ?
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
Give an evaluation of the claimant court
- 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
What is the LFS ( Labour force survey )?
A survey carried out by the international Labour organisation ( ILO ).
47
What is the critirea for the LFS ?
- 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
What is the distinction between unemployment and under-employment ?
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
What is the employment and unemployment rate ?
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
What is the inactivity rate of unemployment ?
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
What are the causes of unemployment ?
Structural Unemployment Seasonal Unemployment Demand Deficiency (Cyclical) Unemployment Real Wage Inflexibility Frictional Unemployment
52
What is structural umployement ?
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
What is structural unemployment worsened by ?
Geographical and occupational immobility of Labour.
54
What two things contribute to structural unemployment ?
Globalisation : production moving overseas for lower labour costs. Technological change : workers begin to be replaced by technology.
55
What is frictional unemployment ?
Temporary unemployment when individuals are between jobs or entering the workforce.
56
Which type of employment means that is it rare to get 100% employment ?
frictional unemployment : there will always be people moving between jobs.
57
What is seasonal unemployment ?
Certain points in the year / Linked to seasonal variations in demand, e.g. tourism or agriculture.
58
What is demand deficiency / cyclical unemployment ?
Unemployment rising from a lack of aggregate demand during economic downturns. ( periods of economic decline or recessions ). Meaning increased redundancies.
59
What is another cause of demand deficiency ?
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
What is real wage inflexibility ?
When wages are too high, leading to job cuts or an unwillingness to hire. ( wages above market equilibrium )
61
What do classical economists argue for about real wage flexibility ?
By letting wages be flexible, by removing trade unions and removing the minimum price, wages could fall and unemployment would fall to 0.
62
What are the impacts of migration on employment and unemployment ?
- Filling in labour gaps which may lead to wage pressures. - Create a more skilled workforce
63
What are the effect of employment on consumers, society and workers ?
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
What are the effects of unemployment on firms and the government ?
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
What is the impact of falling unemployment on consumers ?
Lower standard of living for consumers due to low consumption and widening income inequality gap.
66
What is the impact of rising unemployment ?
- 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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