Measures of economic performance

Question 1

How can the macroeconomic performance of an economy be judged?

Answer 1

Rate of economic growth
Rate of unemployment
Rate of inflation
Current account on the balance of payments

Question 2

Index number

Answer 2

An indicator showing the relative value of one number to another from a base of 100. It is often used to present an average of number of statistics.

Question 3

Formula for Index Number

Answer 3

𝐼𝑛𝑑𝑒𝑥 𝑁𝑢𝑚𝑏𝑒𝑟=
𝑅𝑎𝑤 𝑁𝑢𝑚𝑏𝑒𝑟 𝑖𝑛 𝑃𝑒𝑟𝑖𝑜𝑑/𝑅𝑎𝑤 𝑁𝑢𝑚𝑏𝑒𝑟 𝑖𝑛 𝐵𝑎𝑠𝑒 𝑃𝑒𝑟𝑖𝑜𝑑 X 100

Question 4

Nominal values

Answer 4

Values adjusted for the effects of inflation (values at current prices).

Question 5

Current prices

Answer 5

The level of prices existing during the time period being measured.

Question 6

Real values

Answer 6

Values adjusted for inflation (values at constant prices).

Question 7

Price Index

Answer 7

100𝑋 (𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃/𝑟𝑒𝑎𝑙 𝐺𝐷𝑃)

Question 8

Economic growth

Answer 8

Rate of change of output - usually measured in GDP

Question 9

GDP

Answer 9

Gross Domestic Product - total output of an economy during a period of time
GDP per Capita - how much each person contributes to total GDP

Question 10

GNI

Answer 10

Gross National Income - measures money flowing in and out of a country through UK owned FaOPr

Question 11

Unemployment

Answer 11

High unemployment - inefficient use and underutilisation of scarce resource - indicator of poor economy
Low unemployment - efficient use of resources - indicator of good economy

Question 12

Inflation

Answer 12

Increase in average prices in an economy
High inflation - value of savings decrease, purchasing power decreases, disrupts knowledge of prices
Low inflation - good for an economy, as a small increase in prices doesn’t affect consumers too much and helps grow the economy

Question 13

Disinflation and Deflation

Answer 13

Disinflation - inflation falling from a previous period
Deflation - a decrease in average level of prices in an economy (negative inflation) - bad for economy as it is as perceived to be in terminal decline - if prices are expected to fall, people will save money to buy in the future –> low consumption

Question 14

Measuring inflation…

Answer 14

ONS Living Costs and Foods Survey - average basket of 700 goods to track prices - record prices of goods at different markets

Question 15

CPI

Answer 15

Consumer Price Index - measures overall change in consumer prices based on their basket of goods and services

Question 16

Balance of payments

Answer 16

Record of all financial dealings over a period of time between economic agents of one country and all other country

Question 17

Balance of trade

Answer 17

Balance of trade = exports - imports
Trade in goods - visibles –> exports and imports of goods
Trade in services - invisibles –> exports and imports of services

Question 18

Primary income

Answer 18

Money flowing in and out of a country resulting from employment of earlier investment - interest from foreign banks; business set up abroad bringing money back to the country

Question 19

Secondary income

Answer 19

Transfers of money between countries, that aren’t paying for goods or services - transfer of money between family members

Question 20

Current account deficit

Answer 20

Imports > exports
More money going out of country and coming in including pri/sec income

Question 21

Current account surplus

Answer 21

Exports > imports
More money coming into country than money going out including pri/sec income