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Economics Theme 2 A(s) Level > Measure of economic performance > Flashcards

Measure of economic performance Flashcards

1
Q

How might you measure economic growth?

A

By the rate of change of real GDP (data adjusted for inflation)

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2
Q

How might you measure national income?

A

GNI (the value of goods produced by a country over a period of time and the net overseas interest payment and dividends)

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3
Q

Why is it difficult to compare rates of growth between countries and over time?

A
  • unrecorded economy size differs
  • quality of goods differ
  • different income distributions
  • market exchange rates dont reflect purchasing power.
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4
Q

What is purchasing power parities (PPP)?

A

An exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country.

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5
Q

How might you measure the quality of life?

A

GNH which measures the quality of life, it uses national income as a proxy measure for happiness

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6
Q

What is the easterlin paradox?

A

That happinesses increases as incomes rise but only to a point, beyond it happiness decreases

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7
Q

What is inflation?

A

A sustained rise in the general price level

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8
Q

What is deflation?

A

A fall in general prices

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9
Q

What is disinflation?

A

when prices rise slower than in past years

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10
Q

How do you calculate the rate of inflation?

A

Using the consumer price index or retail price index

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11
Q

What is the consumer price index?

A

A measure that examines the weighted average of prices of a basket of consumer goods.

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12
Q

How do you calculate the consumer price index?

A

By taking the price changes for each item in the basket of goods and averaging it

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13
Q

What are the limits of CPI?

A
  • Doesn’t include housing costs
  • Measures only the cost of living for an average household
  • list of items change once a year and fashion changes faster than that
  • unrepresentative for people wit atypical spending patterns
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14
Q

What is RPI and what is it used for?

A

The retail price index is an index used to measure inflation that includes housing costs

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15
Q

What are the disadvantages to using RPI?

A

Its not reliable for internal comparisons and makes inflation look worse than it is.

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16
Q

What are the causes of inflation?

A
  • Demand pull (increased level of prices caused by increased consumption)
  • Cost push (increase in price level due to production costs increasing)
  • Money supply (spending power increases resulting in high money supply in the economy)
17
Q

What are the effects of inflation on:

  • consumers
  • firms
  • the government
  • workers
A 
Consumers; 
- real value of savings fall
- purchasing power of fixed incomes fall
- value of debt falls
Firms ; 
- loss of international competitiveness 
- increased uncertainty 
- decreased investment from abroad 
Gov ; 
- redistribution of income
- inflation lowers interest rate, cost of borrowing falls
- provides cushion against perils of deflation 
Workers; 
- difficulties to find work
- trade off with inflation and unemployment
18
Q

How would you measure unemployment?

A
  • The claimant count (the number of claimants of Jobseekers Allowance or other benefits)
  • International Labour Organisation (those out of work in the last 4 weeks)
19
Q

What are the disadvantages of the claimant count?

A
  • Doesn’t fully present the picture of unemployment

- however quick and cheap to obtain data

20
Q

What are the disadvantages of using the ILO?

A

Survey data is 6 weeks out of date

21
Q

What is unemployment?

A

A situation where someone is willing and able to work but isn’t employed

22
Q

What is underemployment?

A

A situation where a worker is employed but wants to work more hours

23
Q

What factors affect employment?

A
  • School
  • net migration levels
  • availability of jobs
  • level of taxes and benefits
24
Q

What are the causes of unemployment?

A
  • Structural (declining industry, no transferable skills)
  • Frictional (between jobs)
  • Seasonal (certain times of the year)
  • Cyclical (lack of AD in an economy)
25
Q

What is the significance of migration and skills for employment and unemployment?

A
  • immigration leads to an increase in employment
  • however if immigrants don’t find work or displace other people = employment is unchanged but unemployment increases.
  • increased level of skills in labour force = more flexible workers
26
Q

What are the effects of unemployment to;

  • consumers
  • firms
  • workers
  • governments
  • communities
A
  • consumers ; less income, lower living standards, lower moral
  • firms ; less spending, lower prices, lower profit
  • workers ; obsolete and out of date skills
  • government ; increased jobseeker benefits, less tax revenue
  • community ; lower standards of living, higher crime, civil unrest and social issues
27
Q

What are the components of the balance of payments?

A
  • current account
  • financial account
  • capital account
28
Q

What is the current account in the balance of payments?

A

Records the trade in goods, services, investment incomes (reward for investment in other countries) and current transfers (payment of money across international boundaries that has no corresponding output)

29
Q

What does the financial account do?

A

Records money flows for investment purposes such as FDI and portfolio investments (speculative money between countries)

30
Q

What is the capital account?

A

Records changes in net assets in each country, as well as errors and omissions

31
Q

What is a current account surplus?

A

Where inflows on the current account of the balance of payments are greater than outflows

32
Q

When is a balance of payment deficit a problem?

A

when reserves of foreign currencies begin to run low. thus the country is not paying its way. Its a sign of currency falling in value which is inflationary. Its also a sign the country is becoming uncompetitive.

33
Q

How do you solve a balance of payments deficit?

A

Increase taxes and decrease government spending, however it may cause a slowdown in economic growth.
OR
increase interest rate which will increase exchange rate thus lowering competitive exports and increasing imports

Economics Theme 2 A(s) Level (6 decks)

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