Measure of macroeconomic Performance

Question 1

Define economic growth?

Answer 1

It is the rate of change of output, where there is an increase in the long term productive potential of an economy

Question 2

What is GDP

Answer 2

It is a measure of output, that indicates the standard of living in an economy

Question 3

What is GDP per capita

Answer 3

The GDP per number of people in a country

Question 4

Difference between real GDP and nominal GDP

Answer 4

Real GDP considers inflation

Question 5

What is GNI (gross national income) (another measure instead of GDP)

Answer 5

the value of goods and services produced by a country over a period of time including net overseas interest payments and dividend.

Question 6

What is Purchasing Power Partities

Answer 6

Comparing the cost of living from economies by finding the difference in highest GDP and lowest GDP, e.g £2 a day in Kenya can last while in the UK it cannot.

Question 7

Problems of using GDP to measure macroeconomic performance

Answer 7

• inaccuracy of data due to informal economies and inefficient collecting
• inequalities, as growth may be just occurring for a small group in an economy
• quality of good and services have improved over time but is not reflected on their real price
• spending, like on defence does not increase standard of living
• education is involved in standard of living

Question 8

What is national happiness

Answer 8

The measure of welfare, looking into: real GDP per capita, health, life expectancy, freedom, genorisity

Question 9

When is income and happiness positively correlated

Answer 9

At low incomes

Question 10

What is the Easterlin Paradox

Answer 10

When an increase in income does not necessarily increase happiness

Question 11

How can the income of your friend group influence your happiness

Answer 11

Your happiness depends on your social circle as it is linked to social status

Question 12

What is inflation

Answer 12

It is the general increase in price levels which erodes the purchasing power of money

Question 13

What is deflation

Answer 13

A general fall in prices which increases the power of money (opposite to inflation)

Question 14

What is deflation

Answer 14

It is the fall of prices and indicates a slowdown in the rate of growth of output in the economy

Question 15

What is disinflation

Answer 15

It is the reduction in the rate of inflation (meaning prices are rising but not as much)

Question 16

What is consumer price index (CPI)

Answer 16

ONS statistics of collected prices of 710 goods, from 20000 shops in 141 locations,
Finds out the average household spending patterns via a Food survey
- each item is weighted, meaning a change in a specific item may have more of an impact than another.

Question 17

What are the limitation of CPI?

Answer 17

• it is not totally representative as it is impossible to take into account every good sold

Question 18

What makes RPI different to CPI

Answer 18

RPI includes housing costs

Question 19

What is demand pull inflation?

Answer 19

An increase in AD may cause an increase in prices

Question 20

What is cost push inflation

Answer 20

An increase in AD pushes price up, this increases cost for businesses who may pass this onto consumers

Question 21

What is the effect of inflation on consumers

Answer 21

• they will have less disposable income
• those in debt will pay back at higher value
• decrease in spending

Question 22

What are the effects of inflation on firms

Answer 22

• may shut down due to higher costs
• become less competitive due to high costs of M
• inflation increases uncertainty

Question 23

What are the two measures of unemployment

Answer 23

Claimant Count

ONS labour force survey

Question 24

What is the Claimant Count

Answer 24

• number of people who are claiming benefits and are unemployed every month

Question 25

Define unemployed

Answer 25

Those who sought work in last 4 weeks, been out of work for the last 4 weeks and are ready to start work in the next 2 weeks

Question 26

What is an inactive person

Answer 26

Those neither employed nor unemployed so they’re not of working age, are in education or no longer seeking work

Question 27

What are the limitation of the Claimant Count

Answer 27

• people working in the informal economy
• some may fraudulently claim benefits
• some people may not be eligible for benefits and may not want to claim it due to social stigma

Question 28

List some types of unemployment

Answer 28

Frictional unemployment (ST transition between jobs)
Structural unemployment (LT decline in demand from their industry)
Cyclical unemployment (general lack for d of goods due to trade cycle)
Seasonal unemployment (due to seasonal demand)

Question 29

What impact does unemployment have on workers

Answer 29

• loss of human capital
• loss of income
• suffer from stigma of being unemployed
• lower job security