Measure Of Economic Performance

Question 1

Define GDP

Answer 1

Gross Domestic Product. The value of all goods and services produced domestically in an economy in one year period.

Question 2

Define Nominal GDP

Answer 2

The real value of all goods and services produced domestically in one year period without adjustment for inflation.

Question 3

Define GDP per capita.

Answer 3

GDP per capita is the total GDP divided by the population of an economy. It is a measure of mean wealth of each citizen in the country.

Question 4

What is GNI?

Answer 4

Gross national income. GDP plus the income earned by citizens operating outside the country.

Question 5

Define Gross National Product (GNP).

Answer 5

GDP plus income from abroad minus income sent by non-residents to their home countries.

Question 6

What are purchasing power parties(PPP)?

Answer 6

Exchange rate conversion factors that calculate the relative purchasing power or cost of living of different currencies.

Question 7

What are limitations of using GDP for comparisons?

Answer 7

– lack of information provided on inequality;
– quality of goods and services;
– does not include voluntary work; a line
– difference in hours worked;
– environmental factors.

Question 8

Define The Easterlin paradox

Answer 8

Concept that national happiness and rises in income have a direct relationship but only up to a point, beyond which the relationship is less evident.

Question 9

Which approach to measuring GDP adds up all the expenditure in economy?

Answer 9

The expenditure approach.

Question 10

What is inflation?

Answer 10

Inflation is the sustained increase in average price level of goods and services in an economy.

Question 11

Define deflation.

Answer 11

The sustained fall in average price level of goods and services.

Question 12

What is disinflation?

Answer 12

Disinflation is when a price level is rising, but at a slower rate than previously.

Question 13

What is disinflation?

Answer 13

Disinflation is when a price level is rising, but at a slower rate than previously.

Question 14

What is the consumer price index(CPI)?

Answer 14

The consumer price index is a measure of average price level of goods and services in economy.

Question 15

What is demand pull inflation?

Answer 15

Demand pull inflation is caused by excess aggregate demand over the aggregate supply in an economy.

Question 16

What is cost push inflation?

Answer 16

Cost push inflation is caused by increases in costs of production in the economy.

Question 17

What is cost push inflation?

Answer 17

Cost push inflation is caused by increases in costs of production in the economy.

Question 18

What is wage-price spiral?

Answer 18

The wage-price spiral is when increased wages lead to higher prices, which in turn leads to demands for higher wages

Question 19

What are the limitations of using CPI?

Answer 19

– does not include housing costs;
– ignores regional differences;
– does not capture the quality of the product;
– the CPI only measures changes in consumption on an annual basis, index is always behind;
– errors in data collection (small samples and not enthusiastic respondents).

Question 20

What is the retail price index?

Answer 20

The retail price index is the CPI including the certain goods (council tax, mortgage interest payments, estate agent fees).

Question 21

What is considered to be unemployed?

Answer 21

Not working but actively seeking for work

Question 22

What is labour force?

Answer 22

Actively working ages between 16 to 65.

Question 23

Economically inactive

Answer 23

Not working between 16 to 65 (e.g. students)

Question 24

Non labour force

Answer 24

Not seeking for work (e. g. stay at home parents, pensioners, school children)

Question 25

Define full employment.

Answer 25

When there is enough vacancies for all unemployed to take work.

Question 26

Explain ILO.

Answer 26

International Labour Organisation.

Question 27

What do ILO & UK labour force survey do? Step by step.

Answer 27

1. UK labour force survey is sent to a randoms sample of 60,000 UK households every quarter.
2. Respondents self determine if they are employed based on the ILO criteria.
3. Same survey is used globally so it’s easy to compare international results.

Question 28

What is ILO criteria?

Answer 28

• ready to work within the next 2 weeks.
• have actively looked for work in past month.

Question 29

What does the Claimant Count do?

Answer 29

• counts the number of people claiming job seekers allowance.
• more strongest requirement to be considered unemployed than with ILO.
• requires claimants to meet regularly to meet regularly with a work coach.

Question 30

What are the strengths of unemployment data?

Answer 30

• timely figures in new each month;
• large sample size;
• local and regional jobless data helps policy;

Question 31

What are the weaknesses of unemployment data?

Answer 31

• much hidden unemployment;
• sample errors are inevitable;
• high level of underemployment;
• high rate of labour migration.

Question 32

What is underemployment?

Answer 32

When people want to work more hours more than are currently working or are working in jobs requiring lower level of skills than they have.

Question 33

How is unemployment rate calculated?

Answer 33

Number of people seeking work / total labour force * 100%

Question 34

Explain structural unemployment and give examples.

Answer 34

occurs when there is a mismatch between the jobs available and the skills or qualifications of those actively seeking work in the economy.
e.g. secondary sector is declining and the tertiary sector is growing so no longer need for workeds in secondary server.

Question 35

Explain seasonal unemployment and give examples.

Answer 35

occurs at particular times of the year when the demand for labour is lower than at peak times.
e.g. fruit pickers, ski instructors

Question 36

What is frictional unemployment?

Answer 36

occurs when workers are between jobs as they transition from one to another.

Question 37

What is cyclical unemployment?

Answer 37

caused by a fall in aggregate demand in an economy, usually happens during a slow down or recession and leads to a fall in output.

Question 38

What is real wage unemployment?

Answer 38

occurs when wages are inflexible at a point higher than free market equilibrium wage, usually caused by minimum wage laws or higher wage that creates an excess supply of labour.

Question 39

How does unemployment affect firms?

Answer 39

• loss of sales, revenue because of low consumer spending
• loss of output production
• easier to recruit new employees
• change in skill levels

Question 40

How does unemployment affect consumers?

Answer 40

• decrease in living standards
• loss of confidence
• danger of mental illness
• lower house prices

Question 41

How does unemployment affect government?

Answer 41

• increased spending on benefits, retraining
• less tax revenue
• opportunity cost