MACRO - LS2 - Measures of Economic Preformance (Part 1) Flashcards
What does the fact that the UK is an ‘open economy’ mean?
Actively engages in international trade
What are index numbers used for
To compare data
Index numbers formula
Index No. = (Raw no. in period / Raw no. in base period) x 100
What are nominal values
Prices that are current at time of transaction - doesn’t consider inflation
Value of final goods/services without adjusting for inflation
What are real values
Prices after removing effects of inflation - constant price
Takes into account inflation
Price index formula
Price index = (nominal GDP / real GDP) x 100
What does GDP stand for
Gross domestic product
What is GDP
A measure of economic activity (national output of goods/services) carried out in the domestic economy over a period of time
2 ways output can be measured
Volume - quantity of goods / services produced
Value - calculating value (£billions) of goods / services produced
How is GDP measured
Value
Boom definition
Long period of high economic growth rate
Recession definition
2 consecutive quarters of negative economic growth
Slump
Long recession
Depression definition
Sustained economic downturn over years (growth rate slows)
GDP formula
GDP = gov spending + investment + consumption + net exports
Net exports = exports - imports
GDP per capita formula
GDP per capita = GDP total / population
Limitations of GDP
- May increase but due to wealth divide, may not increase individually
- Unpaid work isn’t part of GDP
- Regional inequality
- Doesn’t consider wealth divide
- doesn’t include improving quality of goods
- No consideration of working conditions etc..
- Countries can have similar GDP per capita but may be different standards of living due to healthcare etc…
Purchasing power parity (PPP) definition
Measurement used to compare the spending power between two or more nations
Shows value of money in terms what you can actually buy with it
What’s GNI
Gross national income - it’s a measure for the standard of living (preferred to GDP)
Difference between GDP & GNI
GNI takes into account:
- Remittance - when people move abroad for work but send money home (improving living standards)
- FDI (Foreign direct investment) - part of GDP but profit sent to home country (decreasing living standards)
- net income received from abroad
GNI formula
GNI = GDP + net factor income
Subjective well-being vs Real income
A persons evaluation of their life - often through surveys and considers emotions
People believe money will make you happier then it does
2 examples of subjective well being
- New Zealand gov announced a well-being budget in 2019 - focus on mental health, poverty etc…
- Bhutan aims to measure Gross National Happiness vs GDP
What’s economic growth
An increase in the productive potential of an economy
Output gaps
The difference between the actual level of real GDP and its estimated long term value at a point in time
Negative output gap
Actual output below trend output
Positive output gap
Actual output above trend output
