Measuring Economic Performance

Question 1

define sustainable economic growth

Answer 1

growth that can continue over time and does not endanger future generations’ capability to expand productive capacity.

Question 2

define full employment

Answer 2

a situation where those wanting and able to work can find employment at the going wage rate.

Question 3

define inflation

Answer 3

a rise in the average price level

Question 4

define hyperinflation

Answer 4

an inflation rate above 50%

Question 5

calculate nominal GDP

Answer 5

GDP figure X base year price index / current year price index

Question 6

define nominal GDP

Answer 6

output measured in current prices and so not adjusted for inflation

Question 7

Define unemployment rate

Answer 7

the percentage of the labour force who are out of work

Question 8

define labour force survey

Answer 8

a measure of unemployment based on a survey using the ILO definition of unemployment.

Question 9

define claimant count

Answer 9

a measure of unemployment that includes those receiving unemployment benefits

Question 10

give the two ways of measuring unemployment

Answer 10

claimant count (cc)
labour force survey (LFS)

Question 11

difficulties of measuring unemployment

Answer 11

• some people are unemployed but cannot or do not seek benefits and so are not included in the cc.
• the cc is relatively cheaper and less time consuming than the LFS.
• some people claiming benefits may not be actively seeking work and cc is therefore inaccurate.
• cc is not suitable for international comparison as criteria for benefits are different for every economy.
• sampling difficulties relating to LFS.

Question 12

how to measure inflation (CPI)

Answer 12

prices of about 700 goods and services. all items are given weights and are compared to the same month last

Question 13

difficulties of measuring inflation

Answer 13

• doesn’t take improving quality into account
• doesn’t take into account people’s ability to alter what they buy each year, if a product has gotten much more expensive, people may have stopped buying it.
• based upon an average house - not everyone is average.

Question 14

causes on economic growth

Answer 14

• increase in aggregate demand
• a cut in tax or a rise in confidence
• in the long run, investment

Question 15

causes of unemployment

Answer 15

cyclical unemployment - lack of aggregate demand
structural unemployment - decline of industries that previously employed many people.
frictional unemployment - workers are in between jobs

Question 16

causes on inflation

Answer 16

demand-pull inflation

cost-posh inflation

Question 17

define demand pull inflation

Answer 17

increases in the price level caused by increases in aggregate demand

Question 18

define cost push inflation

Answer 18

increases in the price level caused by increases in the cost of production, AS decreases

Question 19

consequences of unemployment

Answer 19

lost output
lost tax revenue
government spending on unemployment benefits
pressure on other forms of government spending
costs to the unemployment
hysteresis

Question 20

consequences of inflation

Answer 20

fall in the value of money - with prices rising, each pound will buy less
menu costs
shoe leather costs - people moving money to gain the most rewarding rates, time and effort
uncertainty
loss of international competitiveness

Question 21

benefits of inflation

Answer 21

low and stable:
rise in prices may encourage firms to produce more
firms may match inflation to wages, making workers feel appreciated.

Question 22

benefits of economic growth

Answer 22

rise in material standards of living
reduce in poverty without redistributing income
reducing poverty through reducing unemployment