Macro objectives and indicators Flashcards
GDP
Total values of goods and services produced by a country.
Nominal GDP
Measures output of a country using current prices.
Real GDP
Measures output of a country using constant prices.
Real GDP per capita
Average goods and services produced per person.
Real GDP per capita formula
Real GDP / population
Free market
Number of workers willing to work equals the number of workers whom employers wish to employ.
Consumer Price Index
The CPI measures household purchasing power with the Family Expenditure Survey. It measures what consumers spend their incomes on, thus creating a weighted basket of goods.
Retail Price Index
The RPI is an alternative measure of inflation, which takes into consideration housing costs, such as mortgage interest and council tax.
Labour productivity formula
Output / number of employees at work
Productivity stagnation
Firms are unable to increase productivity due to lack of activity.
Index number formulae
Figure / base x 100
Price Index formula
(Nominal GDP / Real GDP) X 100
Circular flow of income leakeages and injections
Injections put money into the flow
Leakages take money out of the flow
Balance of payments
Records financial transactions between customers, businesses and the government.
Limitations of using CPI
Focuses on urban consumption - the rural population is 18% of the UK (10,000,000 people)
Subsitution bias - A rise in price of a basket of goods, exaggerates a consumers cost of living, as consumers can substitute away from expensive goods.
