3 Economic Measurements Flashcards
What is economic measurement?
Economic measurement concerns the measurement of economic statistics and data.
Statistics is concerned with the collection, classification and use of numerical data
The value of statistics lies in the information we derive to make decisions
What is the goal of all economies?
- To increase productivity
- To decrease unemployment
- Maintain stable prices
Why use economic measurements?
- Accurate measurement of the economy is vital for good economic decisions
- To determine how well the economy is working
- Faulty or inaccurate measurement of the economy leads to bad economic decisions
- Governments, businesses and individuals use economic statistics to make decisions
- The quality of the decisions depends on the quality of economic statistics, which in turn depends on the quality of measurement
- To determine past economic situations and the lessons learnt
- To determine the surrender state of economic affairs
- To determine the future desired situation (*given past lessons and the current situation)
- To determine the future desired situation (change needed)
List down the 5 different measurements used t determine the current status of the economy.
- GDP
- Economic Growth
- Unemployment Rate
- Inflation
- Exchange Rate
Describe GDP.
Gross Domestic Product (GDP) is the value of final amount of goods and services produced (by both nationals and foreigners) within PNG for a particular year. It shows the strength of the economy.
Importance: it shows the strength of the economy and the material well being of the people depends on the GDP.
What’s included in GDP calculations?
- Only goods and services sold on the market with a price are included
- Only newly produced goods and services are included (not second hand items as they were already previously counted in a previous year and would be double dipping in production count)
- Only production within the borders of an economy are included
- Production by both nationals and expatriates are included
- Only final goods and services are included no intermediates
- Only production within a certain time period (within a given year are included)
- Only value added is included to avoid double counting and over estimation
- Illegal transactions are excluded even though sold on the market
- All factor payments (rent for land, wages for labour, interest for capital, and profits for enterprise) are included.
However.
- Does not accurately measure the well being of the population
- Ignores most goods and services that people produce but do not sell
- Does not measure the value of leisure time
- Does no accurately measure changes in production unless adjusted for inflation
- It assigns equal value to goods such as medicine and bands such as cigarettes
GDP per capita
GDP per capita shows the approximate amount of goods and services each person in a country would be able to buy in a year if incomes were divided equally.
However, It does not show how evenly a cnoutry’s income is distributed.
Measurement: GDP per Capital = Total Real GDP / Total Population
Methods to measure GDP?
- Production method - sum of final value of goods and services
- Income Method - sum of returns to the four factors of productions as factor services
- Expenditure method - sum of expenditure by consumers, business, government net exports and net imports
What is nominal GDP?
Nominal GDP measures a country’s gross domestic product using current prices, without adjusting for inflation. aka current price GDP
What’s Real GDP?
measures acountry’s economic output adjustedfor the impact of inflation. Aka constant prices
Unpack Economic Growth.
Economic growth is the long term upward trend in real GDP. It shows the economic health of the country.
It is measured by the % change in real GDP or GDP per capita over time.
Unpack employment/ unemployment/
Employment is the state of having paid work
Unemployment is the state of joblessness
Unemployment rate is the number of people looking for a job as a percentage of the total work force.
Describe the Labour Force.
The labour force is the economically active population, not the whole population.
You are in the labour force if:
- You are in the age group between 15 - 65 years
- You are able to work physically and mentally
- You are willing to work at the existing wages
- You are actively looking for work
You are NOT in the labour force if
- You are below 15 years of age or over 65 years of age
- You are physically l or mentally handicapped
- You are unwilling to work at the current wages
- You are not actively looking for work
- You are in jail or a mental institution
Inflation.
Increase in the general price level. It is when the money in your wallet lose its purchasing power — either because the money supply has dramatically increased or because prices have surged.
Importance: price increase reduces purchasing power. Requires price stability.
Measurement: Measurement by CPI changes
Exchange Rate
The price on one currency in terms of another currency.
Is important because it affects the economic and financial transactions between PNG and an other economy.
