Edexcel A Economics - Theme 2 Flashcards
What is economic growth?
Economic growth is a sustained rise in the value of the GDP, an increase in national output.
What is real GDP?
Real GDP is the value of GDP adjusted for inflation.
What is nominal GDP?
Nominal GDP is the value of GDP without being adjusted for inflation.
What is total GDP?
The combined monetary value of all goods and services produced within
a country’s borders during a specific time period
What is GDP per captia?
The value of total GDP divided by the population of the country.
What is gross national product? (GNP)
The market value of all products produced in
an year by one country.
It includes income earned overseas minus incomes earned by overseas residents.
What is gross national income? (GNI)
The total value of all income in a country, plus product taxes (subtract subsidies), plus receipts of primary income from abroad.
What is PPP?
Purchasing Power Parity
How much the exchange rate needs adjusting so that an exchange between countries is equivalent.
How is PPP calculated?
A basket of the same goods is collected in each country and the costs of the basket of goods are compared.
What are the limitations of using GDP to compare living standards over time?
GDP gives no indication of distribution of income.
GDP may need to be adjusted in terms of purchasing power, so that international price differences can be calculated.
There are large hidden economies, black markets.
GDP gives no indication of welfare.
What is the national happiness index?
It is calculated in the UK by the ONS
The UK economy grew by 5% in GDP per capita between 2007 and 2014, but showed no change in life satisfaction.
However, generally, the higher the GDP per capita, the higher the average life
satisfaction score.
What is inflation?
Inflation is the sustained rise in general price level over time.
What is deflation?
Deflation is the sustained fall in general price level over time.
What is disinflation?
Disinflation is the falling rate of inflation. When price levels are still rising but at a slower rate.
How is inflation calculated using CPI?
Consumer Price Index (CPI)
This measures purchasing power with the Family Expenditure Survey.
The survey finds out what consumers spend their income on. A basket of goods is created.
The goods are weighted according to how much income is spent on each item.
What are the limitations to CPI?
The basket of goods is only representative to the average household. Not accurate to people who don’t own cars as 14% of their income is not spent on motoring.
Different demographics have different spending patterns.
CPI is slow to respond to new goods and services.
Hard to make historical comparisons due to technology.
What is RPI?
Retail price index
This is an alternative measure of inflation.
RPI includes housing cots, such as payments on mortgage interest and council tax.
What is CPIH?
This is CPI including a measure of owner occupiers’ housing costs (OOH), a measure of inflation.
What is demand pull inflation?
When aggregate
demand is growing unsustainably, there is pressure on resources. Producers increase their prices and earn more profits. It usually occurs when resources
are fully employed.
What are the main triggers of demand pull inflation?
Depreciation of the exchange rate.
Fiscal stimulus, lower taxes
Lower intrest rates
High growth in the UK
What is cost push inflation?
Occurs when
firms face rising costs
When does cost push inflation occur?
Raw material become more expensive.
Labour becomes more expensive.
Expectations of inflation.
Indirect taxes.
Depreciation in the exchange rate causes imports to become more expensive.
Monopolies
How does growth of the money supply cause inflation.
The Bank of England printed more money, there would be more money flowing in the economy. It is only inflationary if the
money supply increases at a faster rate than real output
What is hyperinflation?
Hyperinflation is when the prices of goods and services rise more than 50 percent a month.