2.1.1 Measures of Economic Performance Flashcards
What is an economy?
an economy is a system which attempts to resolve the basic economic problem of scarce resources in a world of infinite wants
When judging an economy, what criteria do we have to consider?
- How much is being produced (increase in economic performance)
- Whether resources are being fully utilised (to be producing at its potential level of output)
- The rate at which prices rise (disrupt working of an economy)
How is economic growth measured?
- By the percentage change in real GDP per annum
- also can be shown through the shift of PPF
What does economic growth lead to?
Higher employment and higher living standards
What does purchasing power parity (PPP) show?
It is useful when comparing countries as it takes into account the cost of living (how much has to be spent to maintain living standards), and so will help us better compare living standards.
Whats an example of PPP?
The Big Mac index - examines the relative over or undervaluation of currencies based on the relative price of a Big Mac across the world.
Problems of using GDP to compare standard of living: (5)
- Inaccuracy of data - Some countries may be inefficient at collating data
- Black market -Which people work without declaring their income to avoid tax or to continue claiming benefits, and so GDP is underestimated because these incomes aren’t taken into account
- Inequalities - An increase in GDP may be due to a growth in income of just one group of people
- Spending - Some types of expenditure, such as defence, does not increase standard of living but will increase GDP. For example, the GDP of the UK was higher during the Second World War than in the 1930s because a lot of money was spent on defence which increased GDP but it is difficult to argue that standard of living was higher in the Second World War
- Quality of goods and services - There are higher qualities of goods and services than that of 50 years ago and so with improving technology, prices may fall which may indicated a decrease in the standard of living, which is not the case.
What was the Measuring National Wellbeing report?
In 2010 the UK Prime Minister launched this to measure how lives are improving
What was wellbeing like in 2012-2016?
Life satisfaction continued to rise whilst anxiety levels fell but have begun to rise slightly.
This could be as unemployment is falling/GDP is rising but concerns over global security could be causing anxiety.
What is the Easterlin Paradox?
An increase in consumption of material goods will increase if basic needs are not met (shelter and food), but once these needs are met, an increase in consumption won’t increase long term happiness. For example, in the UK as we already enjoy a high standard of living, even if GDP doubles, happiness will not increase.
