Key Economic Indicators

Question 1

How to evaluate economic performance?

Answer 1

• Economic growth
• Unemployment
• Balance of Trade
• Price stability

Question 2

How to evaluate economic growth?

Answer 2

Actual growth: increase in percentage of real GDP
Potential growth: increase in quality / quantity of goods & services

Question 3

Definition of GDP

Answer 3

GDP is the value of all final goods and services produced within the geographical boundary of a country over a given period of time

Question 4

What can u use GDP for? (4)

Answer 4

• measuring economic growth (actual)
• indicating living standards
• comparing btwn countries (PPP)
• reflecting economic environment of a country

Question 5

Why use real GDP and not nominal GDP?

Answer 5

Real gdp takes into account the effects of inflation

Question 6

How to calculate real GDP?

Nominal?

Answer 6

Base year prices x current year quantity

Current yr prices x current yr qty

Question 7

Gross national income definition (GNI)

Answer 7

The value of all final output of goods and services produced by nationally owned factors of production during a given period of time, using the income approach.

Question 8

Limitations of GDP/GNI

Answer 8

1. Presence of non-market abilities
   -goods and services not bought or sold in a market e.g. homemakers doing housework or farming for your own family’s sustenance
2. Presence of the underground economy
   - unreported transactions, both legal and illegal (drug dealing/home tuition/carousell)

Question 9

What does the Gini coefficient measure?

Answer 9

Measures income inequality

Question 10

What is Price Stability?

Answer 10

It results from a low and stable rate of inflation

(Mild, stable inflation is beneficial in encouraging economic growth)

Question 11

What is
Inflation
Disinflation
Deflation

Answer 11

• sustained increase in general price level
• reduction in the rate of inflation (prices are still rising but at a lower rate)
• prices are falling (bad! Sign of economic weakness!)

Question 12

How to measure price stability?

Answer 12

1. Consumer Price Index (CPI)
2. Inflation rate

Question 13

Limitations of CPI

Answer 13

1. Substitution bias
   (weight of goods in basket will not change— if coffee more ex than tea then consumers will consume more tea instead of coffee but basket will not account for that)
2. Quality adjustment bias
   Quality of good increase so price increase but CPI captures it simply as cost of living increase

Question 14

Full employment definition

Answer 14

Indicates a non-zero, low rate of unemployment that is compatible with price stability when all those who are willing and able to work have gained employment.

Question 15

What are the 3 accounts in the Balance of Payments?

Answer 15

1. Current account
2. Capital and financial account
3. Reserves assets account

Question 16

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