Measures Of Economic Preference Flashcards
Real GDP and nominal GDP difference
Real GDP Accounts for inflation
Gross national income
GDP + overseas investment - what foreigners earn and take home ( used more than GDP )
Gross National Product
Value of all goods produced by citizens of a country
Purchasing Power Paritites
Compares how much a basket of goods costs in one country against another ( measures cost of living )
Issues with using GDP to compare standard of living
Hidden ‘black market’ so GDP underestimated, doesn’t account home grown goods, errors calculating inflation, doesn’t show inequality, doesn’t show where spending is
How do the UK measure national wellbeing?
Use a survey (2010) measuring happiness
What are the 6 factors measuring UN happiness?
GDP per capita, health, life expectancy, freedom, social connections, corruption
Easterlin Paradox
Increase in consumption of goods will increase happiness if basic needs are met but once these are met, an increase in consumption won’t increase long-term happiness
Income-happiness correlation
Also linked with social status
Deflation
A fall in prices, a slowdown in rate of growth and output
Disinflation
A reduction in the rate of inflation
RPI/CPI
Retail Price Index/Consumer Price Index - used to compare years, base figures always 100
CPI
Basket of goods, work out the value of living costs, goods weighted ( how much is spent on each ) to work importance
Limitations of CPI
Not totally representative, doesn’t include the price of housing
RPI
CPI + housing costs, excludes to top 4% of earner + low income pensioners, always greater than CPO
Issues with CPI and RPI
Sometimes overestimated inflation as don’t account for improved quality of goods
Effects of inflation ( to learn )
Debt value falls but consumers owed money lose as money is cheaper value, fiscal drag increased government revenue, less competitive exports, increased inflation
Claimant count
Number of people claiming unemployment benefits
ILO survey
Everyone 16-70 out of employment for 4 weeks, also measures those underemployed
Differences between claimant count and ILO survey
CC includes those fraudulently claiming, ILO includes those who can’t claim benefits, ILO greater than CCP, BOTH don’t include those sick/disabled on gov. training schemes
Frictional unemployment
People moving between jobs, not issues as short-term (also new people entering labour market)
Structural unemployment
Long-term decline in demand in an industry leading to a reduction in employment
Types of structural unemployment
Regional, sectoral, technological
Seasonal Unemployment
Industries like tourism only demand labour during certain times of the year
Cyclical unemployment
A slowdown in growth ( recession ) causes a drop in demand, reducing need for employment
Real wage inflexibility
Real wages above market clearing labour, excess supply of labour ( issues of a minimum wage )
Issues of migration
Leads to lower wages as supply of labour increases - worse effect on low skilled jobs
Impacts of high unemployment on workers
Loss of income, loss of shifts, lower motivation due to less job security
Impacts of high unemployment on firms
Decreased demand so fall in profits, but can offer lowers wages to increase profits
Impacts of high unemployment on consumers
Less choice, but products may be put on sale
Impacts of high unemployment on government
Fall in tax revenue + higher spending, leads to an increase in the deficit
Impacts of high unemployment on society
Higher crime due to social deprivation, regional issues, inefficient on PPF
What does the current account measure?
The trade of goods/services + income + current transfers
What is the government objective in the BoP?
Have export-led growth
Interconnectedness of Economies
Globalisation - due to migration/technology/assets in other countries/international trade ( caused countries to become more interdependent )
