T2: LS2 - Measures Of Economic Performance

Question 1

How is each macro-objective measured?

Answer 1

T - trade balance —> income is calculated or deficit
I - Inflation —> CPI or RPI is calculated
G - economic growth —> GDP value is totalled
G - government budget —> deficit/ surplus calculated
E - employment —> LFS/ claimant count
R - redistribution of income —> GNI per head/ GNI per capita
S - sustainability —> carbon emissions

Question 2

What are index numbers?

Answer 2

A figure which represents a change in value when compared to the original base value. This is used as a comparison of change between the new and original.

Question 3

How are Index numbers calculated

Answer 3

Base number in new period/ raw number in base period * 100

Question 4

Where are index numbers used?

Answer 4

• GDP
• Unemployment
• Inflation
• Trade balance
• Government budget
• Any other stats with numerical values

Question 5

What is the difference between real and nominal measurements

Answer 5

Nominal values: measuring the value of G&S using the current prices at the time
Real values: measuring the value of G&S using prices that are adjusted for inflation

Question 6

How is economic growth measured and what does it look like on a PPF

Answer 6

• measured by GDP mainly
  GDP: represents the total output of an economy in the value of G&S over a period of time

PPF:
- real growth —> shifts from within the curve to into the curve
- potential/ theoretical growth —> shifts the curve outward

Question 7

How can GDP be calculated (3 methods) and how is it actually calculated

Answer 7

1. Adding the total value of G&S produced by firms during a period of time.
2. Can be the total amount of expenditures in an economy over time
3. Can be the total amount of income earned over a period of time.

• Actually calculated by averaging out all three measures

Question 8

Benefits and drawbacks of using GDP as a measure

Answer 8

Benefits:
- calculates total value of G&S
- provides data on total output of an economy
- universal measure and easy to compare

Drawbacks:
- Double counting costs (but can be fixed by using final value of G&S
- Informal activity (subsistence agriculture or DIY)
- Black market activity
- Negative externalities
- Income inequality and social aspects

Question 9

Benefits and drawbacks of GDP per capita?

Answer 9

Benefits:
- Universally accepted
- Compares average output per person
- Measures output of economy and production

Drawbacks:
- Double counting
- Informal activity
- Black market economy
- Negative externalities
- Remittances costs
- FDI income counted in value but income is sent abroad

Question 10

GNI benefits and drawbacks as a measure?

Answer 10

Benefits:
- Uses GDP stats for value
- Includes other factor incomes earnt from abroad (remittances)
- Can be used per capita for income equality
- straightforward and comparable

Drawbacks:
- Informal activity
- Black market activity
- Negative externalities

Question 11

Green GDP

Answer 11

Benefits:
- GDP measure but accounts for environmental costs (negative externality)

Drawbacks:
- not politically favourable as it reduces GDP values drastically in some cases
- not as popular or well used