2.1.1-2 Flashcards
When does economic growth happen?
When a countrys GDP increases.
What does GDP measure?
How much goods and services a country produces. When GDP grows the economy is producing more leading to better living standards and more job opportunities
What is real GDP?
Adjusted for inflation. For example if the economy grew by 4% but inflation was 2% the real growth is 2%
What is nominal GDP?
Not adjusted for inflation and can be misleading as it makes growth look bigger than it is
What is total GDP?
The total value of goods and services produced over a period of time
What is GDP per capita?
Total GDP divided by population and shows the average output per person and useful for comparing countries.
What is Volume of GDP?
The actual size of goods and services
What is value of GDP?
The monetary value of GDP calculated using current prices
What’s gross national product?
Includes GDP plus income from overseas assets minus income earned by foreigners in country
Whats gross national income?
Adds up all income earned by the nation including overseas earnings and subtracts money sent by foreigners.
Whats PPP?
Helps compare currencies based on buying power. It makes looks at fairer comparisons. if a car in Uk is bought for 15k and exchange rate is 1.5 same car should be 10k dollars
What are the limitations of GDP?
- Isn’t perfect for comparing living standards as it doesnt show how income is distributed, doesn’t account for cost of living or inflation, misses hidden economies like black economies and doesnt measure happiness or well being
How do people measure beyond GDP?
UK’s national statistics is exploring ways to measure well being
- Factors like GDP per capital, health, life expectancy, social support
- Survey asks about satisfaction and happiness
Does more money mean more happiness?
- For people with low incomes more money means more happiness. Once basic needs are met extra income has little effect on happiness.
What is inflation?
When prices keep rising over time making things more expensive reducing the buying power of money
What is deflation?
The opposite of inflation, prices drop and inflation is negative
what is disinflation?
When prices still go up but at a slower rate. For example if it raised 4% last year but 2% this year it is still disinflation
How is inflation measured?
Uses CPI to measure inflation this involves:
A survey to see what households spend money on
Creating a basket of goods with items weighted on importance
Updating basket each year
Aims for 2% inflation each year
What are the limitations of CPI?
- It’s an average and doesn’t represent everyone.
- Different groups like prisoners have unique spending habits not fully captured.
- Its slow to include new products
- Hard to compare with past as technology and products have changed overtime
Whats Retail price index?
- Includes housing cots like mortgages and council tax
- Tends to show higher inflation than CPI
- Excludes the richest 4% and lowest income pensioners
What causes inflation?
Demand pull inflation: Too much demand for goods and services often caused by :
A weaker currency
tax cuts or more government spending
Lower interest rates
High demand for UK exports.
What causes inflation 2 for businesses?
Cost push: This is from the supply side of the economy, and occurs when
firms face rising costs
- Expensive raw materials
- Higher wages
- Higher tax on goods
- a weaker currency
- Monopolies charging higher prices.
What are effects of inflation on consumers?
People on low or fixed incomes suffer because basic goods cost more.
- Borrowers benefit since their loan repayments lose value over time
Effects of inflation on Firms?
lower inflation encourages borrowing and investment but higher inflation raises interest rates
- Workers may demand higher wages
- Higher inflation can make UK less competitive
Effect of inflation on government?
Needs to increase pensions and welfare to keep up with cost of living
Effects of inflation on Workers?
Higher prices reduce real incomes leaving people spend less money
- If business costs rises firms might cut jobs to save money
What is the microeconomic effect?
How inflation impacts individuals ,businesses and workers
What is the macroeconomic effect?
How inflation reflects overall change in the economy
