Measuring Economic Performance Flashcards
How to measure economic growth?
It can be measured by the change in national output over a period of time. The national output is all good and services produced in a country .
National output is usually measured by the GDP
National output = national expenditure = national income
Nominal/ real gdp is a figure that has not been affected by inflation.
Why does the GDP and GDP per capita have limitations when used to compare?
The figures may not take into account:
- the extent of hidden economy= economic activity that doesn’t appear in the official figures
- public spending= some governments provide more benefits, such as unemployment benefits and free health care.
- the extent of income inequality. Two countries may have the same GDP but the distribution of income may differ.
What is inflation
The sustained rise in the average price of goods and services over s period of time
What are the two measures of inflation?
The retail price index and the consumer price index
What is the retail price index
To calculate the rpi two surveys are used
1) first survey is of around 6000 households it’s called the living cost and food survey. It’s used to see what people spend their money on. Thus therefore works out the relative weighting of the households
2) the second survey is based on prices. It measures the changes in price of around 700 most commonly used goods and services
= the price changes in the second survey are multiplied by the weightings from the first survey and then converted to index numbers.
What is the consumer price index ?
CPI is basically RPI but it excludes mortgage interest payments and council tax. Also a larger sample is used for the CPI
What are the limitations of the CPI and the RPI?
1) the RPI excludes all households in the top 4% of incomes
2) the information given in the living costs and food surveys may be inaccurate
What are the two ways of measuring unemployment?
The claimant count and the labour force survey
What is the claimant count? And what are its advantages and disadvantages?
The claimant count are the number of people claiming unemployment-related benefits form the government known as the Jobseeker allowance.
Advantages are that the data is easy to obtain and there is no cost of collecting the data. Also it’s updated monthly meaning it’s current.
Disadvantages are that it can be manipulated by the government to make it seem smaller. Also it excludes people who are looking for a job but are not eligible to claim JSA or don’t want to.
What is the labour force survey? And what are the advantages and disadvantages?
The international labour organisation uses a sampler of the population, it asked people who aren’t working if they’re actively seeking work.the number of people who say yes are added up.
The advantages are its thought to be more accurate and is seen as an international measure for unemployment therefore it’s easier to compare
The disadvantages are that it’s less up to date then the claimant count also it’s expensive to collect the data and the sample may be unrepresentative of the population as a whole
Why does the government want to keep the unemployment level low?
1) a night rate of unemployment suggests that the country is doing badly
2) unemployment will lead to lower incomes and less spending
3) unemployment means that there’s unused labour in the economy so fewer goods can be produced
4) it also means that the government has extra costs such as the welfare benefits and less revenue because less tax is paid
What are the four sections on the current account?
1) trade in goods (visible trade) - visible imports or visible exports
2) trade in services ( invisible trade) - services such as tourism
3) international flows of income earned as salaries interest profits and dividends
4) transfers of money from one person or government to another.
What are the 4 main macro economic indicators?
1) economic growth at around 2%
2) low inflation
3) low level of unemployment
4) balance of payments
