2.1.1 - 2.1.4 measure of economic performance Flashcards
1
Q
four main macroeconomic indicators
A
- rate of economic growth
- rate of inflation
- level of unemployment
- the state of balance of payments
2
Q
economic growth can be measured by
A
the change in national output over a period of time
3
Q
national output is
A
all the goods and services produced by a country
4
Q
output can be measured by
A
volume- adding up the quantity of goods produced in one year
value- of all goods produced in one year
5
Q
gdp measure by
A
national output is usually measured by value
6
Q
gdp is calculated by
A
.adding total amount of national expenditure ( aggregate demand) in a year
.add up total amount of national income earned in a year
national output= national expenditure= national income
7
Q
rate of economic growth def
A
is the speed at which the national output grows over a period of time
8
Q
rate of economic growth formula
A
change in gdp/original gdp x 100
9
Q
nominal gdp
A
gdp figure that hasn’t been adjusted for inflation (gives a higher gdp)
10
Q
real gdp
A
gdp figure removing the effect of inflation
11
Q
gdp per capita calculation
A
total gdp/population of size
12
Q
gni
A
( gross national income) gdp plus net income from abroad (income from abroad - income domestic)
13
Q
gnp
A
(gross national product) total output of citizens of a country
14
Q
ways to compare living standards
A
- gni
-gdp per capita - gnp
- purchasing power
15
Q
purchasing power parity
A
the real value of an amount of money in terms of what you can actually buy with it ( less developed will buy more goods than more developed)
16
Q
limitations of using gdp
A
- hidden economy- doesn’t appear in official figures
- public spending- some gov provide more benefits
- extent of income inequality-
- diff spending needs/ environments
17
Q
index number represents
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percentage changes
18
Q
first year of index number called
A
the base year usually set at 100
19
Q
inflation definition
A
the sustained rise in the average
price of goods services over a period of time
20
Q
deflation definition
A
average price will be actually falling
21
Q
hyperinflation definition
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proves rise extremely quickly and money rapidly loses its value
22
Q
disinflation definition
A
rate of inflation slowing down ( prices still rising but at a slower speed )
23
Q
2 main measurements of inflation
A
rpi - retail price index
cpi - consumer price index
24
Q
retail price index how to calculate
A
first survey: living costs and food survey
. survey of 6000 households
. find out what people spend their money on
. find out what promotion of income they spend on these items ( relative weightings of each item) ex 20% 20% weighting
second survey: basket of goods
.measures the change in price of 700 most commonly used goods
.price changes are multiplied by weightings then converted to index number
25
how is consumer price index calculated and differences
cpi calculated in similar way to rpi but there are 3 main differences:
.items excluded- mortgage interest payments - council tax
. larger sample of population is used for cpi
. cpi lower than rpi
26
cpi and rpi limitations
.rpi- excludes all households on the top and bottom 4% of incomes
.cpi- covers a broader range of population but it doesn’t include mortgage interest payments or council tax
.information given by households in living costs and food survey can be inaccurate
. basket of goods only changes once a year- miss short term spending habits
27
how is rpi and cpi important to gov
policy
- help determine wages and state benefits
- government uses them to decide on increase state pensions
- some benefits are index linked rise automatically
- also measures change in uk international competitiveness
28
what happens if rate of inflation measured by cpi is higher in uk than in other countries
uk goods less price competitive and cost more for other countries exports fall and imports made cheaper by domestic inflation increases
29
causes of inflation
- demand pull
- cost push
- growth of money supply
30
cost push inflation explained
inflation caused by the rising costs of inputs to production
producers pass on higher costs to consumers by higher prices
31
example of ways cost push inflation caused
- rise in wages
- rise in cost of imported raw materials
- rise in indirect taxes
32
demand pull inflation explained
inflation caused by excessive growth in aggregate demand compared to supply which will shift demand to the right and allows sellers to raise price
33
ways demand pull inflation caused
- high consumer spending/ demand for exports
- money supply growing faster than output
- shortages in resources
34
costs of inflation
. inflation will cause standard of living of those on fixed incomes to fall
. country’s competitiveness will be reduced as exports cost more
. inflation discourages saving causes shortages of funds for borrowing
. inflation causes uncertainty decrease investment
35
unemployment definition
the level of unemployment is the number of people who are looking for a job but cannot find one
36
ways of measuring unemployment
- the claimant count
- the labour force survey
37
claimant count
the number of people claiming unemployment related benefits from the government
38
advantages of claimant count
. data easy to obtain
. no cost in collecting data
39
disadvantages of claimant count
. can be manipulated to be made smaller ( change rules to reduce no of people who can claim )
. excludes those people who are looking for a job but not eligible to claim benefits
40
labour force survey
ilo uses sample of population. asks people who aren’t working if they’re looking for work.
41
advantages of labour force survey
. more accurate than the claimant count
. internationally agreed measure for unemployment so easier to make comparisons
42
disadvantages of labour force survey
. expensive to collect data
. sample may be unrepresentative of the population as a whole
43
costs of unemployment
. suggest economy is doing badly
. low spending fewer goods
. economy is not as productive because unused labour
. gov has extra costs
44
why gov wants full employment
. maximise production increase living standard
. unemployment means economy won’t operate at full capacity
45
under employment def
when someone has a job that does not utilise that person’s skill and experience
46
types of unemployment
. cyclical
. seasonal
. structural
. frictional
47
frictional unemployment
unemployment experienced by workers between leaving one job and starting another
48
cyclical unemployment
happens when economy is in recession (ad falls decreased employment)
it is not predictable and can affect any industry
49
seasonal unemployment
demand for labour won’t be same all year round
is more predictable and can affect certain industries
50
structural unemployment
decline in an industry or occupation due to change in consumer preferences or technological advances or cheaper alternatives
51
occupational immobility
occupations decline over time but workers don’t have the skill to do other jobs
52
geographical immobility
worker are unable to leave a region which has high unemployment because they might not be able to afford to move into a different region or family ties
53
the length of time people spend looking for new job will depend on several things:
. boom- number of job vacancies high
. slump- shortages of jobs
. welfare benefits- less incentive to look for a job
. occupational/ geographical labour immobility
. quality of information to people looking for jobs
54
real wage unemployment
real wages pushed above equilibrium level of unemployment
55
migration affects unemployment during recession
migration increases supply of labour
during recession unemployment among native workers may increase especially if migration levels are high
56
diff types of economic growth
short run - measured by change in real national output ( actual inflation removed)
long run - caused by an increased in capacity
57
economic cycle phases
- boom- economy grows quickly fall in unemployment increase inflation
- recession- negative growth in AD decreased unemployment fall in price levels
- recovery- grow in economy AD increases unemployment decreases
58
calculate index number
new/ base x 100
59
costs of economic growth
- income inequality
- more wages more responsibility more stress
- demand pull inflation
- cots pull inflation
- industrial expansion- negative externalities
- finite resources used up
60
economic depression
sustained economic downturn
61
benefits of economic growth
- increase demand decrease unemployment
- firms earned greater profit increased spending
- improve fiscal position of government
-benefits to environment- invest more in efficient production process
62
four main economic objectives of government and some extra
- strong economic growth
- keep inflation low (2)
- reducing unemployment
- equilibrium in balance of payments
- balance budgets
- protect environment
- achieve greater income equality
63
any factor that reduces production costs causes
increase in supply shift to the right
64
how can a recession be bad but good
.people lose jobs increase unemployment
. gov spending increases increased gov borrowing
but
discount retailers attract customers
some firms get away with being inefficient
65
ways to create long run economic growth
. increased quantity/ quality of factors of production
. new innovation
. invest in capital stock
. improve human capital
. increase population size
66
how much AD curve shifts depends on
.marginal propensity to consume
.how big the multiplier effect
inc mpc bugger multiplier effect greater shift to the right
67
the balance of payments refers to
international flows of money
68
the balance of payments records
records all financial transactions of a country with other countries
the flow of money out of a country
the flow of money into a country
( the value of exports and imports not volume)
69
how many sections in current account
4 sections
70
what is the current account
measures total value of exports - total value of imports
the main part of balance of payments
it records the international exchange of goods and services
71
name the sections of current account
- trade in goods (visible trade)
- trade in services (invisible trade)
- primary income (international flows of income earned as salaries interest profit and dividends)
- secondary income (transfers of money from one person or government to another)
72
transfers def
the movement of money between countries which aren’t paying for goods and services and aren’t the result of investments
ex payments made to family members abroad
73
to calculate overall current account balance
add up individual balances
( subtracts imports form exports-trade, debits form credits- transfers and investment income)
+ means surplus - means deficit
74
recent data on uk balance of payments
. visible trade- deficit large- imports more
. invisible trade- small surplus- exports slightly more
. investment income- surplus- receives more payments from investments
. transfers- deficits- makes foreign aids
75
causes for current account deficit
. high levels of consumer spending
. struggling to compete internationally- rise in value of currency-
. deal with external shocks- rise in raw materials- trade barriers- economic downturn
76
what causes a current account surplus
- experiencing a recessions- domestic producers struggle to sell products domestically and focus on selling internationally
-domestic currency has low value- cheaper exports imports more expensive
- high interest rates- causing more saving and less spending
77
consequences of bop deficit
- indicate uncompetitive economy
- may not be bad and show country is wealthy enough to be able to afford a lot of imports- high standard of living
- fall in value of currency- higher import prices- inflation
- job losses domestically increased unemployment
78
consequences of bop surplus
.prolonged surplus could lead to stagnation due to low domestic demand ,, negative economic growth
. reliance of exports
. high unemployment
. undervalued currency ,, cause inflationary pressures- price of imported components rise and ,, cost of production rises
79
way gov correct bop deficit
. use policies to reduce price of domestic goods
. impose restrictions on imports (tariffs)
. devalue/ depreciate currency (exports cheaper)
. use fiscal/ monetary policy to reduce spending/ domestic demand
80
ways gov correct bop surplus
. raise value of currency
81
global impacts when gov of major economies try to balance bops
. supply side policies to correct deficits may increase world trade/ growth
. restrictions on imports can lead to trade wars
. fall in exports from developing countries
82
capital account
includes transfers from non monetary and fixed assets
most important is the flow of the non monetary and fixed assets of immigrants and emigrants
83
financial account
involves monetary movement of financial assets
84
what does the financial account include
. FDI foreign direct investment
. portfolio investment- investment in financial assets
. financial derivatives- contracts whose value is based on the value of an asset
. reserve asset- financial assets held by bank of England
85
long term flows due to
things like FDI or portfolio they’re predictable
86
short term flows due to
based on speculations and people’s firms trying to quickly make money
87
international economies and interconnectedness
economies now more dependent on each other. means global trade imbalances can carry serious risk
