economic measures explanations

Question 1

happiness

Answer 1

rise in GDP - people working more to pay for luxuries

Question 1

government objective and why

Answer 1

economic growth needs to be stable and sustainable . stable growth allows consumers/businesses to plan ahead
sustainable growth means growth occurs without causing environmental damage

Question 2

government target

Answer 2

economic growth needs to be comparable to other economies at a similar stage of development

Question 3

GDP measure on previous quarter increases

Answer 3

economy is growing

Question 4

population increase

Answer 4

economy in contraction
solved - GDP per capita where GDP figure is divided by population

Question 5

living standards

Answer 5

‘regrettables’ cause increase GDP. increase in police officers, cuz rise in crime, peoples standard of living have fallen

Question 6

comparing national incomes can be difficult because :

Answer 6

income distributions different =. high levels inequality

populations different- figures adjusted per capita

exchange rates vary

some countries more expensive to live in than others

Question 8

problems with GDP comparing living standards over time/betwen countries

Answer 8

GDP doesn’t take into account improving quality of technological goods

GDP doesn’t include unofficial/unpaid work

increases in real GDP may not be shared equally among economies population

may be increase in other problems eg pollution

Question 9

National happiness

Answer 9

In 2007 the OECD World Forum issued a declaration calling for fact-based information that could be used by a society to formulate a shared, comparable, valuation of national well-being. In the UK, the ONS launched its Measuring National Well-being Programme in 2010, to bring together a range of indicators across ten dimensions of the quality of life that would allow the monitoring of well-being through time.

Question 10

Comparing national income between countries can be difficult

Answer 10

Income distributions may be different= high levels of inequality

Populations different meaning figures adjusted per capita

Exchange rates may vary betw countries

Some countries are more expensive to live in than others

Question 11

How to alleviate issues of national incomes between countries

Answer 11

Though PPP
Compares cost of living in one country allowing for comparisons to be made in living standards

Question 12

If real GDP is growing,

Answer 12

this means the value of goods and services being produced is rising. So it should mean, ceteris paribus (everything else equal), that incomes and standards of living are rising.

Question 13

Benefits of PPP

Answer 13

The PPP exchange rate remains fairly constant year round, so it can be easily compared.
Exchange rates will often get closer to the PPP as time passes.
Knowing the PPP will allow you to track and predict exchange rate relationships.
PPP can help you to examine the relative living conditions of different countries.

Question 14

Limitations of national income data

Answer 14

Two countries could have the same level of GDP (national income), but the country with a larger population will have a lower ‘average’ GDP per person. So we can improve national income data by looking at GDP per capita (GDP divided by population).

Question 15

gov objective-inflation

Answer 15

inflation needs to be low and stable
low - prices still rising, incentivising firms to increase supply
stable price levels allow consumers and businesses to plan ahead

Question 16

Economic indicators-inflation

Answer 16

One reason inflation is an indicator of the strength of the economy is because high and unexpected inflation would mean goods and services are becoming unaffordable as the purchasing power of income falls.

Question 17

gov target- inflation

Answer 17

inflation needs to be at 2% symmetrical target
leads to confidence in market, leading to increased spending by business and consumers ,c rating economic growth

Question 18

calculating inflation - basket of goods

Answer 18

720 of most common goods and services nought by average household
updated yearly

Question 19

calculating inflation - diff retail outlets

Answer 19

180,000 diff prices collected every month from 140 diff locations

Question 20

calculating inflation - weightings

Answer 20

goods and services placed into categories such as ‘food’
weighed to reflect amount of income spent on them by consumers

Question 21

inflation - not true reflection of price changes

Answer 21

products increase in price = more technologically advanced

Question 22

overstates inflation

Answer 22

if products in basket of goods increase in price consumers will stop buying it - so rates not accurate

Question 23

inflation figures are only averages

Answer 23

basket contains petrol/cigarettes but not everyone in uk drives/smokes
single person wont buy same as family

Question 24

Causes of cost-push inflation

Answer 24

National minimum wage increases.
Trade union wage increases.
Increase in world commodity prices, e.g. oil price rises globally.
External supply-side shocks, e.g. bad harvest abroad causing the price of wheat to rise.
Rise in indirect taxes, e.g. VAT (if it is passed on to consumers).
Rise in corporation tax (if it is passed on to consumers).
Falling productivity (which causes unit costs to then in that each good costs more to produce)

Question 25

A growth of the money supply can also cause inflation.

Answer 25

This is because more money is pushed into the economy and therefore the purchasing power of the currency decreases. This leads to price rises.

Question 26

Government causes of demand-pull inflation

Answer 26

Excessively ‘loose’ fiscal policy: income taxes could be cut too much or government spending be increased too quickly.
Excessively ‘loose’ monetary policy: interest rates could be cut too much or too quickly and Quantitative Easing could be too high.

Question 27

Causes of demand-pull inflation

Answer 27

Exchange rate depreciation – causes the price of exports to be cheaper in foreign currency terms and thus demand for exports rises. This causes the value of exports to increase, so X-M increases.
Rising animal spirits (confidence) e.g. due to positive wealth effect from rising house prices.
Excessive borrowing.
Global economy experiencing faster growth in incomes and buying a lot of goods from the UK, causing UK exports and AD to rise quickly, causing demand-pull inflationary pressure.

Question 28

inflation consequences for firms

Answer 28

Business uncertainty – volatile prices means firms may reduce investment because it is riskier.
Falling international competitiveness – a high inflation rate vs main trading partners will mean a country’s exports will be less internationally competitive.

Question 29

The role of expectations

Answer 29

If inflation expectations rise, this can cause people to spend now to avoid the future higher prices.
This could lead to demand rising, causing prices to rise even further.
Expectations of higher inflation could cause higher inflation: a self-fulfilling prophecy!

Question 30

two measures of unemployment

Answer 30

are the Labour Force Survey and the Claimant Count.

Question 31

How Automatic Stabilisers Work

Answer 31

Unemployment benefits would increase government spending when unemployment is high. The government would also receive less income tax and so would not have as much revenue to invest in public services to address the problems caused.

Question 32

The following could cause a deficit:

Answer 32

Low productivity, meaning the final price of the goods are likely to be higher.
Inflation being higher domestically than abroad, reducing the international competitiveness of domestic goods.
A strong exchange rate, reducing the price of imports and increasing the price of exports.
Non-price factors, such as poor quality of goods and services.
Supply-side constraints, which could cause a lot of goods being imported from abroad.

Question 33

If a deficit is because of capital goods imports, then ……
If a deficit is because of the purchase of current goods then …

Answer 33

it is likely to be good for future productivity and future growth.

it will be good for the short-term standard of living.

Question 34

If the USA is running a current account deficit.

Answer 34

To fund this deficit, it has to have a capital account surplus. It does this by selling US government debt (called treasuries) to foreign governments and international private investors.

Question 35

Effects of a deficit

Answer 35

A current account deficit needs to be financed by a financial account surplus - so it will become a problem if foreign investors stop wanting to purchase assets in that country.
If a country has a free floating currency, the currency will depreciate. This may partially offset the uncompetitiveness of exports.
This will also cause the price of imports to rise though, leading to higher prices for consumers and potentially cost-push inflation.

Question 36

inflation benefits

Answer 36

-low and stable, demand-pull inflation, may encourage firms to increase output
-if pay rates rise, even by same level as inflation, workers feel valued, more productive
- demand falling - firms avoid redundancy by not increasing wages by inflation rate

Question 37

inflation effect -UK international competitiveness

Answer 37

UK products more expensive= whole economy less competitive as products become more affordable in other countries

Question 38

inflation effect- uncertainty in business planning

Answer 38

• prices fluctuate = economy unstable
  difficult for businesses to assess future demand = investment reduction

Question 39

inflation effect- purhcase power of fixed incomes

Answer 39

price level rise - reduce purchasing power people on fixed incomes eg benefits,pensions
increased prices= cant buy as much for their money

Question 40

inflation effect- unemployment

Answer 40

increase Econ growth = decrease unemployment
leads to price increase

Question 41

inflation effect-wage-price spiral

Answer 41

cause and effect relationship between rising wages and rising prices/inflation
rising wage = increase disposable;e income , raises demand for goods , price rise

Question 42

gov objective of unemployment

Answer 42

full employment - situation where those wanting and able to work can find employment ar the going wage rate
any level of unemployment is a waste of resources, means economic growth is lower than it could be and gov have to waste resources by providing welfare payments and job centres

Question 43

gov target of unemployment

Answer 43

-economists believe naturally occurring rate of unemployment of between 3% and 5%
-due to occupational immobility and geographical immobility deemed almost impossible to achieve full employment

Question 44

advantages of LFS

Answer 44

true reflection of no people actually employed an unemployed

internationally accepted collection method, allows for comparison

consistent so used by goc to measure performance against target

Question 45

disadvantages of lFS

Answer 45

subject to sampling errors - doesn’t give accurate data
involves contacting 60000 households= time consuming and costly

Question 46

advantages of JSA

Answer 46

allows gov to plan their spending, accurate budgets
figure easy to calculate=cheap method of collection

Question 47

disadvantages of JSA

Answer 47

figure can be manipulated by gov - set criteria for JSA

doesn’t include people who are unemployed but not eligible for benefits

figure is not internationally comparable

Question 48

increase in employment

Answer 48

more workers
increase in tax revenue (income tax and vat)
increases aggregate demand = economic growth

Question 49

increase in unemployment

Answer 49

gov loses tax revenue, while having to increase spending on welfare
aggregate demand falls, leading to fall in economic growth rate

Question 50

iincrease in inactivity …

Answer 50

worse for the country
reduces amount of resources available(labour) and reduces ability to produce goods and services
leads to inward shift of aggregate supply = fall of economic growth rate

Question 51

costs of unemployment

Answer 51

-lost output
- lost tax revenue
- gov spending on benefits-pressure on finances - opportunity cost
- pressure on other areas, eg sickness, crime,housing
- poor health,poverty
-hysteresis

Question 52

benefits of unemployment

Answer 52

-encourage look for more rewarding job
-opportunity to return to education and up-skill
-easier for firms to fill vacancies with suitable applicants
-price levels fall, reduce of inflationary pressure
- dissuade workers from seeking wage rises and taking industrial action

Question 53

causes of deficit on current account

Answer 53

• occurs when countrys people spend more on goods and services from abroad than overseas residents have spent on countrys products
  -becuase there has been net outflow of investment income
• if incomes falling abroad, demand for countrys exports will fall, rise in incomes at home will contribute to deficit as people will increase spending on imports
  -rise in exchange rate also may result in a deficit, as will raise export prices and lower import prices
• outflow of investment income occurs if investments that foreign residents have made in country earn more than investment the countrys people have made in other countries

Question 54

cause of surplus on current account

Answer 54

• occurs when countrys revenue from abroad is greater than its expenditure
  -can happen when revenue from exports exceeds expenditure on imports OR because country=net earner of investment income
• surplus likely to occur if countrys products = high quality , produced at low cost, reflect what households /firms abroad + at home want to buy
• fall in exchange rate can give rise to surplus as a reduction in value of currency lowers exports prices and raises import prices
• recession also can give rise to surplus as a countrys peoples may cut back on buying products including imports - forcing firms on competing in export markets

Question 55

consequences of a deficit

Answer 55

• country is consuming more than its producing
• extra income is going abroad
• aggregate demand will fall
  -unemployment will increase
• price levels will fall
• may lead to fall in exchange rate
• counters debt will increase

Question 56

consequences of a surplus

Answer 56

• country is consuming less than producing
• leads to net inflow of income
• banks have more money and increase lending
  -rise in surplus means net exports increase
• aggregate demand will increase
• exchange rate will appreciate