2.1 Performance Measures Flashcards
What is GDP?
The market value of all goods and services produced within an economy within a year
Why are PPP adjustments made?
To account for differences in cost of living between countries
What are the problems of using GDP as a measure?
- doesn’t take into account improving quality of technological goods.
- doesn’t include unofficial work
- inequality
Increase in other problems eg pollution
Why does the ONS measure national well being?
Due to issues relating GDP and happiness
What is the Easterlin paradox?
At a point in time happiness varies with income, but over the long term rates of happiness and income are not significantly related (marginal gains in happiness fall - people only care about relative as well as absolute incomes).
How is inflation measured?
CPI and RPI meausres - shopping basket of over 700 goods, weighted to reflect item importance, mainly derbived from ONS living costs and food survey
What are the measures of unemployment?
Claimant count and ILO measure
Which is higher in economically prosperous times the claimant count or ILO?
ILO is higher than the claimant count (opposite way around in an economic slowdown)
What is an under employed worker?
Someone who is in employment but wants to work more hours
What are economically inactive people?
Those who are not available for work or not looking for work
Why does a 1% increase in consumption have a bigger impact than a 1% increase in government spending?
Consumption is a larger component of aggregate demand (roughly 60%)
What proportion of AD is net exports?
1%
What proportion of AD is consumption?
60%
What proportion of AD is gov spending?
Around 25%
What proportion of AD is investment?
15%
What factors influence the size of fiscal deficits?
State of the economy, housing market (influences revenues from stamp duties), political priorities and unplanned events
What do the size of fiscal deficits have an impact on?
Interest rates, debt servicing, inter generational equality, inflation, countries credit rating and FDI
Why do higher incomes traditionally lead to greater subjective happiness?
Greater ability to repay debt, wealth creation, goods and services spending that improves standard of living
Why does increasing the level of tax not always lead to an increase in the level of taxation?
The laffer curve (there is a disincentive to work at higher tax rates)
