Measure of macroeconomic Performance Flashcards
Define economic growth?
It is the rate of change of output, where there is an increase in the long term productive potential of an economy
What is GDP
It is a measure of output, that indicates the standard of living in an economy
What is GDP per capita
The GDP per number of people in a country
Difference between real GDP and nominal GDP
Real GDP considers inflation
What is GNI (gross national income) (another measure instead of GDP)
the value of goods and services produced by a country over a period of time including net overseas interest payments and dividend.
What is Purchasing Power Partities
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.
Problems of using GDP to measure macroeconomic performance
- 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
What is national happiness
The measure of welfare, looking into: real GDP per capita, health, life expectancy, freedom, genorisity
When is income and happiness positively correlated
At low incomes
What is the Easterlin Paradox
When an increase in income does not necessarily increase happiness
How can the income of your friend group influence your happiness
Your happiness depends on your social circle as it is linked to social status
What is inflation
It is the general increase in price levels which erodes the purchasing power of money
What is deflation
A general fall in prices which increases the power of money (opposite to inflation)
What is deflation
It is the fall of prices and indicates a slowdown in the rate of growth of output in the economy
What is disinflation
It is the reduction in the rate of inflation (meaning prices are rising but not as much)
What is consumer price index (CPI)
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.
What are the limitation of CPI?
- it is not totally representative as it is impossible to take into account every good sold
What makes RPI different to CPI
RPI includes housing costs
What is demand pull inflation?
An increase in AD may cause an increase in prices
What is cost push inflation
An increase in AD pushes price up, this increases cost for businesses who may pass this onto consumers
What is the effect of inflation on consumers
- they will have less disposable income
- those in debt will pay back at higher value
- decrease in spending
What are the effects of inflation on firms
- may shut down due to higher costs
- become less competitive due to high costs of M
- inflation increases uncertainty
What are the two measures of unemployment
Claimant Count
ONS labour force survey
What is the Claimant Count
- number of people who are claiming benefits and are unemployed every month
Define unemployed
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
What is an inactive person
Those neither employed nor unemployed so they’re not of working age, are in education or no longer seeking work
What are the limitation of the Claimant Count
- 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
List some types of unemployment
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)
What impact does unemployment have on workers
- loss of human capital
- loss of income
- suffer from stigma of being unemployed
- lower job security
