economic measures definitions Flashcards
economic growth
short run - increase in real GDP
long run - increase in productive capacity
real GDP
countrys output produced in constant prices and so adjusted for inflation
GDP
gross domestic product
value of all goods and services produced in a country in a year, can be measured by adding up all of economy’s income, expenditure and output
quarter
3 month period
GDP is negative
economy is contracting
two consecutive quarters of contraction =
economy Is in recession
informal economy
transaction not recorded
eg illegal activity - ‘cash in hand’ jobs
price index
100 x nominal GDP/real GDP
Nominal GDP
calculated first but actual figure can be distorted by inflation figures before announced adjusted by change in price levels
gross national income
total domestic and foreign output claimed by residents of a country. different to GDP, all income paid into the country
(GDP + INCOME)
purchasing power parity
exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to another
Purchasing Power Parity (PPP)
This is an additional exchange rate adjustment that equalises the price of internationally traded goods across countries.
Arbitrage
If, at a certain exchange rate, it is cheaper to buy goods in one country than another, businesses will buy goods in the cheaper country and sell in the other for a profit.
National income
National income is used to assess changes in living standards in a country, and between countries, over time. But it is not a perfect measure.
disinflation
fall in the rate of inflation- prices are still rising but more slowly than before
consumer prices index
measure of price level used across the EU and used by the Bank of England to measure inflation against its target
retail prices index
measure of price level used in a variety of contexts, such as gov to index welfare benefits
RPI calculated
same way as CPI
+ mortgage interest repayments
+council tax
Demand-pull inflation
Demand-pull inflation is caused by increases in aggregate demand outstripping aggregate supply. The economy is close to full employment, and increases in AD lead to the general price level rising because supply cannot keep up with increased demand.
Exchange rate depreciation
– causes the price of exports to be cheaper in foreign currency terms and thus demand for exports rises.
menu costs
costs firms face of keeping prices updated in shops
‘hysteresis’.
when workers are unemployed for a time period, they become deskilled and demotivated and are less able to get new jobs - this is known as ‘hysteresis’.
The Claimant Count (CC)
The Claimant Count (CC) is defined as a person who is receiving the Job Seekers’ Allowance.
International Labour Organisation (ILO)
ILO measure defines unemployment as someone who has been actively seeking work for the past four weeks but ready and able to start in the next two weeks. This is collected in the UK by the Labour Force Survey.
Demand-side in the labour market refers to the demand for labour from firms.
demand side factors=
Demand-side factors affecting employment and unemployment include:
Health of firms, e.g. profit levels, demand for goods.
Confidence of firms.
Overall strength of economy.
Government intervention to encourage hiring.
Level of labour market regulation/costs of hiring.
Supply-side in the labour market refers to the supply of labour by workers.
Supply-side factors
Supply-side factors affecting employment and unemployment include:
Labour market flexibility, e.g. trade union strength.
Skills of workers.
Geographic mobility of workers.
Occupational mobility of workers.
Hysteresis
Hysteresis is a general term that means the history of a system affects the future of the system. In unemployment, hysteresis would mean that a history of being unemployed in the past may make a worker more likely to be unemployed in the future.
The insider-outsider effect
A fall in AD reduces output and employment as some people lose their jobs.
The insiders who keep their jobs have strong bargaining power inside their firms. Their firm-specific skills and bargaining power mean that they claim wage rises, rather than hiring more ‘outsiders’
Current account
Current account
The current account is comprised of:
Trade in goods and services (X-M).
Net primary income - net factor income from abroad (e.g. remittances, profits, interest on dividends).
Net secondary income - net unilateral transfers
financial account
The financial account is comprised of:
Net foreign ownership of domestic assets.
Hot money flows.
Capital account
The capital account is comprised of:
Sale/transfer of patents, copyrights, franchises, leases and other transferable contracts, and goodwill.
Transfers of ownership of fixed assets.
Unilateral transfers
Unilateral transfers are payments by governments or individuals in which money is sent abroad without any direct good or service being received
International trade
nternational trade allows current account surpluses and deficits to develop.
A current account deficit
A current account deficit may show that a nation is importing lots of goods and services. However, if labour and input costs are cheaper overseas, this may reduce inflationary pressure.
A current account surplus
can mean that an economy is exporting a lot of goods.
demand-pull inflation
increases in price level caused by increases In aggregate demand
cost-push inflation
increases in price level caused by increases in costs of production
quantitive easing
growth of money supply , effect of making more money available for consumers/firms to borrow/spend/invest
increases aggregate demand and causes demand pull inflation
inflationary noise
distortion of price signals caused by inflation
economic agents unsure if price rise is due to inflation or rise In product price
unemployment
occurs when Individuals are without a job but actively seeking work
unemployment rate
percentage of labour force who are out of work
( unemployed/labour force ) x 100
labour force
those in work or actively seeking work ; also known as the active population
economically inactive
people of working age who are neither employed nor unemployed
labour force survey
measure of unemployment based on survey using ILO definition of unemployment
International labour organisation
member organisation of the UN that collects statistics on labour market conditions and seeks to improve working conditions
claimant count
measure of unemployment includes those receiving employment related benefits
known as job seekers alliance
underemployment
situation- workers working less hours than they want to or are in jobs below their skill level
Balance of payments
record of all financial dealings over a period of time between economic agents of one country and all other countries
current account
part of balance of payments account where payments for purchase and sale of goods and services are recorded
current account surplus
surplus exists when value of exports are greater than imports
current account deficit
deficit exists when value of imports are greater than exports
gov objective of balance of payments
promote UK exports in manafacturing and service sectors in order to balance imports and exports
got target of balance of payments
to achieve situation where money entering the economy (exports) is equal to money leaving (imports)
3 main elements of balance of payments
current account
capital account
financial account
current account : trade in goods
AKA visibles - trade in raw materials, semi-finished goods and finished goods
UK = developed economy so has large deficit on trade in goods
current account : trade in services
AKA invisibles, include insurance and banking and spending related to tourism such as hotels and restaurants
UK has a large surplus on trade in services
current account : primary income
results from loan of factors of production abroad such as profits from UK companies with outlets abroad
can be ‘remittances’ swell of which the UK has a deficit
current account : secondary income
payments given and received by the government from agencies such as the IMF and the World Bank
quantitative easing
growth of money supply - makes money more available for consumers and firms to borrow/spend or invest-increase aggregate demand cause demand-pull inflation
Animal spirits
level of confidence of business owners
boom
peak of business cycle when growth is high
budget deficit
gov spends more than it receives
injection
spending power entering the circular flow of income
LRAS
total output economy can produce when operating at full output
marginal propensity to consume
proportion of increase in income spent on consumption
fiscal drag
peoples incomes being dragged into higher tax brackets that aren’t adjusted in line with inflation
