index numbers + national income data

Question 1

what are index numbers

Answer 1

a way of expressing economic data.
eg average price of housing in the uk is … and is predicted to rise to …….
it helps make ugly numbers less ugly
to allow for quick and easy data comparisons

Question 2

how to calculate an index number

Answer 2

first choose a ‘base’ (could be a year)
the base is the thing that everything else is being comapred to.

raw number / base year raw number x 100

Question 3

what is national income

Answer 3

the total value of goods and services produced in an economy in a given period of time. GDP / National Output.

Question 4

Limitations of national income data

Answer 4

if two countries have the same level of GDP, but the country with a larger population will have a lower ‘average’ GDP per person. Therefore, should also look at GDP per capita

Question 5

inflation

Answer 5

RGDP is adjusted for inflation, adjusting for ‘Purchasing Power Parity’ helps solve the issue. Two countries with the same level of GDP may have different costs of living, therefore the country with higher would purchase fewer goods and services, therefore the quality f life will be poorer.

Question 6

working hours and leisure time

Answer 6

if a country can produce the same amount of goods and services as another, but in a shorter time, that country is more productive, therefore will have more leisure time.

Question 7

arbitrage

Answer 7

buying products cheaper in different countries to be sold in another for a profit. forces prices and exchange rates to align overtime.

Question 8

Benefits of Purchasing Power Parity

Answer 8

exchangerate remains constant year-round, therefore can be compared.

Knowing the PPP will allow you to track and predict exchange rate relationhips

can help examine the relative living conditions of different countries.

Question 9

what is price index

Answer 9

normalised average of a price relative for a given class of goods or service in a given region during a given period of time. it is also known as cost of goods.

Question 10

what is price level

Answer 10

buying power of money ‘ INFLATION

Question 11

what are some inaccuracies of national income

Answer 11

• some developing countries, have poor data collection agencies which means that the quality of the GDP data is weak.
• the shadow economy is illefal activies that create GDP but are not recorded in the formal economy. (selling of illegal drugs or undeclared cash i hand)

-two countries could have the same reported real GDP, but one may have a larger shadow economy, therefore the actual income is higher