LS2 Flashcards
Formula for index number
Raw number in period / raw number in base period x 100
What is real GDP
inflation-adjusted measure of the value of all goods and services produced in an economy.
What is nominal GDP
measure of the value of all goods and services produced in an economy without rate of inflation
Formula for price index
100 x nominal / real
Formula for real gdp
100 x nominal/price index
What is GDP
Total output of an economy during a period of time
What is GNI
the sum of a country’s gross domestic product (GDP) plus net income (positive or negative) produced from abroad
Difference between GDP and GNI
GNI is more preferred because it closely reflects the incomes of the residents, including net flows of income between countries
What is PPP
Helps to compare the cost of living between countries
What causes an increase in output
Increase in the quality and quantity of the inputs of production
Limitations of using GDP to compare living standards between countries and over time?
Doesn’t not take account into the improving quality of goods
Does not include unofficial or unpaid/goodwill work
Does not take into account other factors that affect living standards
Increases in real GDP may not be shared equally among an economy’s population
What is deflation
A decrease in the general price level of goods/services within an economy resulting in an increase in the purchasing power of money
Disinflation?
A decrease in the rate of inflation (general price level is decreasing but at a slower rate)
What is the ONS
Office for national statistics
They track an average baskets of essential goods (about 700 goods) to find what British households buy through the living costs and food survey
The effect of inflation on consumers?
Reduction in purchasing power.
Weekly spendings will not buy the same quantity of goods/services as it used to
This will have a larger impact on those with lower incomes
The effect of inflation on firms?
Increase in interest rates - Bank of England will try control inflation by deterring consumption and investments thus reducing the upward pressure on price
Effects of inflation on government?
Cause GDP growth to slow down, leading to government receiving low tax revenues and increased level of borrowing.
Market interest rates will also increase, causing government borrowing to become more expensive
Effects of inflation on workers?
They will experience a fall in real incomes, if their incomes do not rise in line with inflation.
This will lead to workers purchasing power falling as price of goods/services rise.
Name the two measures of unemployment?
The claimant count
The international labour organisation (ILO)
What is the claimant count?
Measures the number of people claiming job seekers allowance in the UK
Those who are unemployed, but have a partner that is working are not eligible to claim JSA
Those under 18 or have a certain level of savings also cannot claim JSA
As a result of this, the claimant count figure of unemployment is often lower than the labour force survey figure
What is the ILO
A survey give to a random sample of households within the UK
They answer whether they fit the ILO definition of unemployment
= READY TO WORK WITHIN 2 WEEKS AND HAVE ACTIVELY LOOKED FOR WORK IN THE PAST MONTH BUT CANNOT FIND A JOB
It is a worldwide measurement of unemployment, making it easier for comparisons of unemployment to be made
In total, the survey goes out to around 60,000 UK households
Who are the “economically inactive”
Students, those who have retired or sick or looking after family members.
Also, discouraged workers - who have failed to find work and have given up looking
Problems of measurement of unemployment?
Claimant count isn’t reliable because it excludes people who might be validly recognised as being unemployed - those returning to the workforce after raising children or other reasons for absence
Excludes those on government training schemes
The ILO is based on sample evidence and the sample cannot be guaranteed to be fully representative.
What is underemployment?
People who cannot find jobs for which they are qualified and who take jobs in second choice occupation
What is hyperinflation?
Very high rates of inflation
Occurs when the price level increases by more than 50% per month.
What is GDP per capita
the total income of a country, divided by the number of people living in that country
What is GNP
All goods/services and other forms of output produced by an economy in a given period of time
What is the balance of payments?
Record of all financial dealings over a period of time between economic agents of one country and all other countries
What is the current account?
Where payments for the purchase and sale of goods and services are recorded
Capital/financial accounts
Where flows of money associated with saving, investment, speculation and currency stabilisation are recorded
Trade in goods?
Known as visibles, such as trade in raw materials , semi manufactured goods
What is growth?
growth is the expansion of the economy, leading to improved factors of production and higher output
Trade in services?
Known as invisibles, examples are financial services, transport services - intangible.
Current account consists of?
Trade in goods, services - intangible and tangible goods
Primary and secondary incomes - remittances etc
Transfers - eu fees, aid contribution
