Measirements Of Econ Performance Flashcards
GDP
Total amount of goods and services produced in a country in one year
Economic growth
Measure of an increase in real gross domestic product
Potential economic growth
Measure of the increase in productive capacity of economy
Recession
If economy has two consecutive quarters of negative economic growth then it is in a recession
Standard of living
Measure of the quality of life : can include physical assets and consumption and less easily measured variables such as happiness, lack of stress, length of hours worked , lack of pollution and capacity of houses
Why does income rise not necessarily mean rise in sol
Depends on distribution of money
Whether inflation has been taken into account
Amount spent on investment and long-term socially beneficial projects
Population change
Growth in different countries evaluation (6)
Income distribution
Size of public sector- if much of the spending in the economy is by the government it might or might not improve welfare of the population
Subsistence/ barter/black economy : if farmers consumer their own products , if goods are being traded without price system or if goods are being traded without being declared for tax purposes ( hidden economy - UK 7%, Russia 50% ,)
Methods of calculation and reliability of data
Relative exchange rates- do they represent the purchasing power of local currency
Type of spending by government -is money spent on warfare or on quality of life issue such as education and health
Consumer and capital spending -spending on investment goods might mean standard of living increases in the future but at the expense of living standards today
Inflation
Sustained rise in general price level
CPI
Measure of inflation used for inflation targeting in UK
Does not include housing costs such as mortgage interest /rent
RPI
Includes housing costs
Inflation target
The gov tasks the Monetary Policy committee with the objective of 2% inflation
Base rate of interest
Tool used primarily in the UK to control the level of inflation
It is the cost of credit that the central bank set for its immediate financial translations and other rates of interest in the economy are based pro rate against this
Problems with CPI
Sampling problems - only 57% of households respond to survey - may not actually give accurate info
The 650 items in basket only changed once a year but tastes and fashions change more quickly than this - does not reflect the fact that ‘buy one get one free’ temporarily change spending habits’
For people with atypical spending patterns the. CPI will not be representative e.g. Vegetarians & non-drivers
When quality of goods changes the measure breaks down because it is not comparing like with like and monthly mortgage payments often form large part of households spending
Does not include housing costs such as mortgage repayment or rent
Problems with RPI
Not as reliable for international comparisons and the statistical method basing the data is also unique to the UK
Because RPI includes the cost of mortgage payments and these will rise if interest rates rise any interest rise implemented to tackle inflation will have a one off effect of making inflation appear worse which makes policy makers look incompetent
Level of employment
Number of people in work
Rate of employment
Proportion of people in work relative to the size of the workforce
Factors that influence levels of employment
School leaving age Number of school leavers entering higher education Level of net migration Availability of jobs Level of taxes and benefits
Cyclical
Lack of spending / demand means people are out of work
Structural
Where industries are in decline and workers skills are becoming out of date
Frictional
Where people are between jobs
Classical
Problems with the supply side of labour -minimum wage is too high
ILO
Conducted by Labour Force Survey
Face to face interview followed by telephone survey of 60,000 households including whether anyone on the household has been out of work for 4 weeks and is ready to start in the next 2 weeks
Relate to anyone over 16
6 weeks out of date by the time they are published
Claimant count
Number of people claiming JSA
No everyone who is eligible to claim benefits does so - tight stigma attached ( if you resigned from previous job within last 6 months or have refused 3 jobs offered you cannot claim)
Have to prove in interview centre very 2 weeks
Must be over 18
Quick and cheap and a useful measure of actual hardship
Costs of unemployment
Cost to individual - lower incomes and living standards will fall - people loose morale and skills become obsolete
Cost to firms - people spend less - less profit
Cost to gov- more benefits and less tax
Benefits of unemployment
Entrepreneurship opportunities
Keeps inflation down
People work harder to keep jobs
HDI
Composite measure of the quality of life which is valuable for comparing living standards in different countries
Health- life expectancy at birth
Education- years of schooling
GDP per head at purchasing power parity
Evaluation of HDI
Reliable and fairly easy to obtain indicators
Takes income into account but qualifies it in terms of coots of living
Gives no indication of distribution of incomes- indication of deprivation might make it more useful -Human Poverty Index
Life expectancy is easy to measure but gives no indication of quality of life
Years of schooling may be unreliable if students are repeating years as they fail to make progress
Mobile phones per thousand of the population
allows to catch fish to be brought to port where prices are highest
can be used to develop a cashless trading system in a country where the currency and finance systems are insecure
don’t rely on constant supply of electricity and therefore are a strong indication that a country can develop despite problems in infrastructure
Proportion of workers involved in agriculture
The higher the number of employees involved in agriculture the weaker the opportunities for development
Leakage
Outflow from the circular flow of money- savings , taxes, imports
Injections
Investments which increase capital stock
Government spending
Exports
Multiplier effect
The number of times a change in incomes exceeds a change in net injections that caused it
It is the knock on effect on incomes when injections and withdrawals change
If there is any change in spending in an economy , the final impact on incomes will be much greater than the initial impact
The greater the leakages the smaller the multiplier
Marginal propensity to consume
How much of any extra pound earns is re spent within economy
Aggregate demand
Total planned expenditure on goods and services produced in the UK
C+I+G+(X-M)
Why is AD curve downwards sloping?
Lower prices in an economy mean increased international competitiveness so there are more exports and fewer imports
The total amount of spending will be approximately equal whether prices are high or low because people have approximately the same amount of money to spend so the area under the curve will be fairly constant
At higher price levels , interest rates are likely to be raised by the monetary authorities meaning that investment will fall and saving may increase
Consumption
Spending of households on goods and services
Main component of AD
Measures the amount consumers wish to spend at various price levels
Main determinants of consumption (5)
Interest rate: if they rise then it costs more to borrow - increases the opportunity cost of spending - more money can be earns by leaving money in bank
Consumer confidence: if households feel secure in their jobs, future prospects for economy they are more likely to buy big items such as cars
Wealth effects: increase in share / house prices means households are willing and able to spend more
Level of employment and wage rates: higher the level of employment , the more will be spent in the country
Supply of credit: fall in supply of credit acts as constraint on consumption
Distribution of income:lower income families have higher propensity to consume
Investment
Increase in capital stock
