Measuring Economic Performance Flashcards
What is macroeconomics
Economy as a whole
What are the four macroeconomic indicators used to measure economic performance
Rate of inflation
Rate of economic growth
State of the balance of payments
Level of unemployment
Define gdp
Measure of economic growth
How is economic growth measured
Change in output over a period of time
Define national output
All goods/services produced by a country
What are the two ways output are measured
Volume - add up qty of goods + services produced in 1yr
Value - value of all goods + services produced in 1yr
What measure out output is national output measured in
Value (this is gdp)
What is the rate of economic output
Speed at which the national output grows over a period of time
What are booms
Long periods of high economic growth
What is a recession
Negative growth for 2 consecutive quarters
What is a slump
A long recession
What is an economic depression
Sustained economic downturn for a long period of time
What is nominal gdp
Gdp that isn’t adjusted for inflation
Define real gdp
Gdp that is adjusted for inflation
What does gdp per capita indicate
Standard of living
How is gdp per capita calculated
Total gdp / population size
Define gni
Gross national income
Gdp + net income from abroad
Define gnp
Gross national product
Total output of citizens in country
What do index numbers represent
Percentage changes
What are index numbers useful for
Making comparisons over a large period of time
What is a base year
First year (index numbers)
What are the two ways you can define inflation
A sustained rise in the average price of goods + services over a period of time
A fall in the value of money
What happens when there is negative inflation / deflation
Average price decreases
Define hyperinflation
Price rises rapidly, money quickly loses value
Define disinflation
Rate of inflation is slowing down
What are the two main measurements used for inflation
RPI (retail price index)
CPI (consumer price index)
What occurs in the RPI
Two surveys are carried out
1st - survey of around 6000 households (living costs + food survey)
Used to find out what people spend their money on
2nd - based on prices - measures the change in price of around 700 of the most commonly used goods + services (items chosen based on the living costs + food survey)
What occurs in the CPI
Consumer price index
Measured very similar to RPI however
1) some items are excluded (mortgage interest payments, council tax)
2) calculates using a slightly different formula
3) a larger sample of the population is used for CPI
What is the official measure of inflation in the UK
CPI
What are the limitations of the two main measurements of inflation
- excludes all households in top 4% of incomes
- CPI covers a broader range of the population , however excludes some items
- information given by a household might be inaccurate
- can give inaccurate representation of non typical households
What does RPI and CPI help determine
State benefits + wages
Used to measure changes in UK international competitiveness
What are the two ways of defining unemployment
Number of people who are looking for a job but cannot find one
Number of people out of work as a % of the Labour force
Define labour force
People who are willing and able to work
What are the two ways of measuring unemployment
Claimant count
Labour force survey
Define claimant count
Number of people claiming unemployment related benefits from government
Advantages of claimant count
Easy to obtain (count JSA)
no cost in collecting
Updated monthly, so always current
Disadvantages of claimant count
Can be manipulated by government to make it seem smaller
Excludes people looking for work but aren’t eligible to claim JSA
Define labour force survey
Uses a sample of the population, asks people who aren’t working if they are currently seeking work
Advantages of labour force survey
More accurate than claimant count
Internationally agreed measure, easier to compare with other countries
Disadvantages of labour force survey
Less upto date than the claimant count
Expensive to collect+put together
Sample may not represent the population as a whole
Why do government want to keep track of unemployment
High unemployment - bad performing economy
Unused labour in economy, fewer goods +services being produced -> lower income + less spending -> impacts companies
What is balance of payments
International flows of money
What does it mean when you pay for imported goods
Money flowing out of the country
What does it mean when you get payments from export goods
Flow of money intro country
Define current account
Records the international exchange of goods + services
What are the four sections to the current account
Trade in goods (visible trade)
Trade in services (invisible trade)
International flows of income earned as salaries, interest, profit
Transfers of money
What does it mean when the amount of money flowing into a country exceeds the amount flowing out
Surplus
What does it mean when the amount of money leaving the country exceeds the amount of money coming in
Deficit
What is a deficit a sign of
A country is uncompetitive
Why should you avoid large, long term deficit
Causes job losses
