Measures Of Economic Performance ✅

Question 1

Comparison of growth rates, why they must be evaluated

Answer 1

How well off the country is in the first place
How much of the output is self consumed, farmers
Methods of calculation and reliability of data
Relative exchange rate, ppp
Composition of government spending

Question 2

Use of ppp

Answer 2

When values are expressed in accordance with the amount thay the currency will buy innthe local economy
This allows us to compare standard of living
Basket of goods / big mac index

Question 3

Exam q

Limitations of using GDP to compare living standards between countries

Answer 3

Hidden economy- farmers consuming output
Informal economy- volunteering in charity shop, is output of service 
Currency values
Income distribution 
Size of the public sector spending 
Population size 
Quality of products 
Quality of life due to high GDP
Consumer vs capital spending 
Happiness - Easterlin paradox

Question 4

Calculating the rate of inflation

Answer 4

• survey of what people buy, virtual basket, (LCF) each item is weighted due to spending
• survey is then taken of price changes

Question 5

Limitations of CPI

Answer 5

• only measures for average household, top/bottom 4% are excluded
• sampling problems
• list of items is changed once a year but taste changes quicker
• anomalies, non drivers and vegetarians
• quality of good changes, new phone

Question 6

Alternative ways of measuring inflation

Answer 6

CPIH - involves house and rental prices

RPI - unique to UK, cannot even used internationally, takes into account changes in mortgage prices and interest rates

Question 7

Types of inflation

Answer 7

Demand pull - AD goes out increasing the price level
Cost push- cost of production goes up, AS shifts in, price level increases
Increase in money supply, QE

Question 8

Exam Q what are the effects of inflation

Firms, government, consumers, workers

Answer 8

Firms- technically can reduce wages, halt investment, have to push prices up, reduces competitiveness ( exports and imports), decreased investment from abroad
government- reduces pay for those on benefits, reduces interest rate+cost of borrowing,
consumers- reduces value of savings, increases spending, debt decreases, those on fixed incomes lose out
workers- wage “cuts”

Question 9

Employment and unemployment

Answer 9

Labour force- number of people who are in work or are actively looking and are ready to work
Working age population- everyone between 16-64
Economically inactive- people with a job that are not looking for one

Question 10

Measures of unemployment

Answer 10

ILO/labour force survey: questionnaire sent round every moth asking who is unemployed
Claimant count: number people people claiming JSA

Question 11

Underemployment

Answer 11

When a person is employed but wants to work more hours

Question 12

Frictional unemployment

Answer 12

People who are unemployed between jobs, or beginning to look for jobs after entering the workforce

Question 13

Structural unemployment

Answer 13

Measure of the workers who will lose jobs due to declining industries and do not have the skills to move sector

Question 14

Seasonal unemployment

Answer 14

Unemployed at certain times of the year

Ski instructors , holiday reps

Question 15

Significance of migration

Answer 15

Net migration= immigration minus emigration
If immigration fills vacancies employment increases
If immigration displaces people from work or do not find work unemployment increases and employment stays the same

Question 16

Factors effecting the rates of employment , unemployment, inactivity

Answer 16

School leaving age
Number of people entering further education
Number of people working above retirement age
Level of net migration
Availability of jobs
Level of taxes and benefits

Question 17

Real wage unemployment

Answer 17

Measure of people who are unwilling to work at going rates

Classical view, believes that wages being kept above market clearing rate is the main cause of unemployment

Question 18

Demand deficient unemployment

Answer 18

Caused by lack of aggregate demand in the economy such as during a recession

Question 19

Effects of unemployment ( to different people)

Answer 19

Costs to consumers- people have less income, living standards fall
Costs to firms- less profits
Costs to workers- if workers are out of work for a long time they may lose their skills, or skills may become out of date
Costs to government- government have to pay more benefits and will receive less revenue
Costs to society- economy less productive due to unused resources, increased cru,e

Question 20

Current account

Answer 20

Takes into account
Exports minus imports
Investment income- reward for investment in other countries
Current transfers- payment of money across international boundaries that has no corresponding output e.g wages paid to uk millitary working in another country

Question 21

Financial account

Answer 21

Records money flow for investment purposes , and hot money which is speculative movement of money between countries as exchange rates and interest rates change

Question 22

Effects of current account imbalances

Answer 22

Could be a sign living standards are rising
Currency might fall in value
Sign that country might be becoming uncompetitive, which can cause unemployment
Higher taxes to deal with more expensive imports

Question 23

Functions of the price mechanism

Answer 23

Rationing device - resources are scarce, price mechanism allocates these resources to those who are willing to pay the most, price will rise and fall until Eq is reached
Incentive device- price rising is an indication for firms to produce more, due to rising prices firms can cover the extra cost involved with increasing output
Signalling device- indicates change to producers

Question 24

benefits of economic growth

Answer 24

Firms - profit due to greater CS
consumers - incomes and wealth/assets rise, people get better jobs, spend more
Governments- more tax revenue, unemployment may be lower so spending on benefits decreases
Government may spend on increasing living standards for all

Question 25

Actual Economic growth

Answer 25

An increase in real incomes or real gross domestic product

Question 26

Actual economic growth

Answer 26

Is an increase in real income or real gross domestic product

Question 27

Potenital economic growth

Answer 27

Increase im the producitve capacity in a country usually caused by an increase in the labour supply, invesment or productivity
Used to show the output gap between potential and acutal economic growth

Question 28

Differnce between GDP and GNI

Answer 28

Gdp is the total value of all goods and services produced in a country within a given year.
GNI is GDP plus the net income paid into the country e,g intrest and divedends

Question 29

Limitaions of using GDP to compare living standards between countries

Answer 29

• Hidden economy- farmers consuming their own output
• informal economy - charity shops volunteer is an output of service but is not recorded
• currency values- debate wether to use GDP or PPP
• Income distrubition- average income per head and median income can be very different
• size of public sector - if public sector spending is a large % of GDP welfare may increase ( large defence spending does not increase welfare)
• consumer and capital spending - capital spending may compromise living standards today for greater living standards in the future
• Quality issues - large spend does not equal good quality
  Quality of life- rising GDP and incomes could come at cost of pollution or number of hours worked

Question 30

national happiness

Answer 30

another limitation of using GDP to measure living standards as money does not equal happiness
GNH- aims to measure quality of life
Easterlin paradox- happiness rises with incomes but only up to a certain point, showing government policy should not just be aimed at economic growth

Question 31

Differnce between current account and balance or payments

Answer 31

Current account - (exports - imports), investment income, current transfers

Balance of payments- current account + capital & finanical accounts

Question 32

Macroeconomic objectives

Answer 32

Low unemployemnt
Low and stable inflation
Economic growth at a similar rate to other exonomies
Balance of payments equilibrium
High economic growth tends to mean thay the current account balance becomes a deficit so growth should not be too high
Goverement want export led growth

Question 33

How Interconnectedness of economies is growing

Answer 33

Economies become interdependant
Proportion of output of an indivudal which is traded internationally economy is trowing
Many people/ companies own assets in other countries
Increased migration between countries
More technology being shared