MACRO - LS2 - Measures of Economic Preformance (Part 1)

Question 1

What does the fact that the UK is an ‘open economy’ mean?

Answer 1

Actively engages in international trade

Question 2

What are index numbers used for

Answer 2

To compare data

Question 3

Index numbers formula

Answer 3

Index No. = (Raw no. in period / Raw no. in base period) x 100

Question 4

What are nominal values

Answer 4

Prices that are current at time of transaction - doesn’t consider inflation
Value of final goods/services without adjusting for inflation

Question 5

What are real values

Answer 5

Prices after removing effects of inflation - constant price
Takes into account inflation

Question 6

Price index formula

Answer 6

Price index = (nominal GDP / real GDP) x 100

Question 7

What does GDP stand for

Answer 7

Gross domestic product

Question 8

What is GDP

Answer 8

A measure of economic activity (national output of goods/services) carried out in the domestic economy over a period of time

Question 9

2 ways output can be measured

Answer 9

Volume - quantity of goods / services produced
Value - calculating value (£billions) of goods / services produced

Question 10

How is GDP measured

Answer 10

Value

Question 11

Boom definition

Answer 11

Long period of high economic growth rate

Question 12

Recession definition

Answer 12

2 consecutive quarters of negative economic growth

Question 13

Slump

Answer 13

Long recession

Question 14

Depression definition

Answer 14

Sustained economic downturn over years (growth rate slows)

Question 15

GDP formula

Answer 15

GDP = gov spending + investment + consumption + net exports
Net exports = exports - imports

Question 16

GDP per capita formula

Answer 16

GDP per capita = GDP total / population

Question 17

Limitations of GDP

Answer 17

• 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…

Question 18

Purchasing power parity (PPP) definition

Answer 18

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

Question 19

What’s GNI

Answer 19

Gross national income - it’s a measure for the standard of living (preferred to GDP)

Question 20

Difference between GDP & GNI

Answer 20

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

Question 21

GNI formula

Answer 21

GNI = GDP + net factor income

Question 22

Subjective well-being vs Real income

Answer 22

A persons evaluation of their life - often through surveys and considers emotions
People believe money will make you happier then it does

Question 23

2 examples of subjective well being

Answer 23

• 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

Question 24

What’s economic growth

Answer 24

An increase in the productive potential of an economy

Question 25

Output gaps

Answer 25

The difference between the actual level of real GDP and its estimated long term value at a point in time

Question 26

Negative output gap

Answer 26

Actual output below trend output

Question 27

Positive output gap

Answer 27

Actual output above trend output