theme 2 Flashcards
what are ‘aggregates’?
refers to ‘totals’
eg: total unemplyment
total spending on goods/services -rather than the spending on a particular good
coz MACRO - so overall picture
what are some particular aspects of the economy which must be monitered?
- inflation rate (stable economic enviroments allow markets to operate effectivley)
- unemployment (indication as of if resources are being used to full potential)
- international trade
- economic growth
what is the importance of data?
monitor the performance of the economy.
according to thi observe and judge as to weather performance is satisfactory , and if theories are true
what is the function of index numbers?
makes unwieldy data easy to understand
How do you calculate index numbers?
what is total GDP?
Gross Domestic Product:
the total value of national output of goods and serives produced in a year
what is economic growth?
- an increase in the real GDP (value of goods and services) produced in the economy
- long run increase in productive potential of an economy
what is nomianl GDP?
the final value of goods/ services within an economy without adjusting for inflation
what is real GDP?
the value of final goods/services within an economy adjusting for inlation
real/nominal
EXAM TIP
if ask to evaluate nominal daat, say that you cannot be completelt sure of impact on economy , as real data would be more useful and accurate
How do you calculate a price index?
If the nominal increase in personal salary was 4% and the inflation rate is 3%, then what is the real increase in salary?
real = nomial- rate of inflation
4 - 3 = 1%
Why does the graph look like this?
In 2020 the nominal value doesn’t take into account the inflation rates that increaed
How is the GDP per capita calculated?
GDP/ country population
what is GDP per capita?
- shows how many goods/ srvices can be enjoyed per person / average output per person
- can be used as a comparison for standards of living in countries
*
what is gross national income (GNI)?
The value of goods and services produced ina given time period** plus net income from overseas** (final value of income flowing into the UK)
more accurate
what is one of the main measures of economic growth?
the rate of change of real GDP
What is the value and volume of GDP?
value: what certain goods/services are worth
volume : number of goods/services produced
GNI vs GDP
GNI is better to use for standard of living (more accurate )
* GNI calculates income rather than output
what is GNI per Capita?
the total real GNI/ Population
takes the population into account
what must you account for when comparing data for growth rates between countries?
- real better than nominal (infaltion)
- GDP per capita is better than GDP , population taken into account
what is gross national product (GNP)?
the value of goods/ services overtime through labour or property supplied by citezens of a country both domestically and overseas
value of goods made by people whether they live in the country or not
what is economic welfare?
growth in living standards (more goods produced, more things for people)
what is the problem when comparing GDPS?
- volatile exchange rates
- price levels vary (how much you can buy from each thing)
What is a purchasing power parities
How much of a currency is needed buy a basket of goods compared to another currency
* allow international comparison
a ratio of currency excahage
What is the Big Mac index?
🍔 how much a Big Mac costs around the world, and how many can be bought using the real GDP per Capita
what are the limitations of real GDP used to measure living standards?
- ignores population changes
- ingores income distribution
- ignores type of goods
- ignores the underground economy
- ignores the subsitance economy
why is the fact that real GDP not taking into account population matters?
if population is grwoing faster than real GDP, then GDP per Capita will be decreasing and so everyone will be worse off than GDP suggests
why does the type of good purchased incraese GDP but not living stnadards?
because the goods being produced have negative externalities which actualy decrease living standards
What are negative externalities
external costs that affect others
eg:
* death
* pollution
* heart disease
what is the underground economy?
a.k.a the black market
* transactions made for illlegal things (prostitues, drugs, ) which will not be included official data (GDP) therefore it is inaccurate to measure living standards by it
* payments made in cash- private tutors
what is the subsistence economy?
- people who produce their own food and consume it themselves
- since nothing is bought and sold it cannot be recorded for in the GDP
therefore GDP underestimates and canno br used to measure living stnadar
what is the easterlin paradox?
- initially as average income increases, hapiness increses to a point where people are able to live comfortably
- however the marginal hapiness from each £ of income then begins to fall as people spend money on things they do not need
what does “marginal” mean?
one extra unit
marginal hapiness= the hapiness gained from one extra unit of income
how is hapiness measured in the UK?
- ONS- Office of National Statistics conduct a national well being survey
- this data is compared to previosu periods of times
although is nominative an not completely accurate
bhutan
what may other countries be focused on apart from GDP?
- gross national hapiness
what is inflation?
a sustaned increase in the general price level
how is the rate of inflation measured?
- price level data is converted into consumer price index
index= current (price level) / base number (price level) - from this you can easily clauclate intrest rates change using the percentage change formula
calculating inflation rate
what is disinfaltion?
- infaltion rate is still incraesing (positive)
- BUT the rate is less than last year
- inflation rate is falling
the price level continues to rise but by a smaller percentage
what is deflation?
- where the inflation rate is negative
- price levels are actually going down
what are the three stages in calculating the UK’s price level?
- the ONS conducts it’s living costs and Food survey. This involves interviewing 7000 households to find 650 most common goods and services
- the ONS conducts a price survey where they collect the prices of these 650 goods from across the UK in order to find an average price level
- a weighted average of all the prices is calculated to find the price level
what are the problems with CPI as a measure of standard of living?
- unusual spending habits
- changes in quality
- lag time
- doesn’y include mortages
why are unusual spending habits a problem with CPI?
- the 650 basket of goods “most common goods and services” are only accounted for by the average consumer, not weirdos
- buying uncommon goods and services whicch may not be accounted for
why is time lag a problem with CPI?
- CPI basket is only updated every year
- therefore will not acknowlege price changes in new goods and services
- however consumer cost of living is imapcted almost immediatly
why are changes in quality a problem with CPI?
prices could be increaseing duento an increase in quality rather than inflation
what is the working age population?
people between 16 and 64 yeas
what is the difference between the inactive and active population?
aka economically inactive/active
inactive: are not able to work, are not activley seeking work (inheritance, uni students, disabled)
active: are able to work, are activly seeking for work, cureently working (workforce)
what is unemployment?
when someone is able to work and is activley seeking work but they are not currently working
how is the unemployment rate calculated?
the % of unempolyed people out of the active population
what is the unemployment level?
the number of people unemployed
how is the employment rate calculated?
number of employed people/ total working age population
how is the activity rate calculated?
or articipation rate
active population/ working age population
why would
* employment rates
* unemployment rates
fall
emplyment:
number of people emplyed decreased, working age population increased
unemployment rate:
number of people economically active increases, unemplyment decreases
what would the effect of an increase in immigration be on employment and unemployment level?
unemployment level would increase hoever the emplyment level may stay the same
describe the ILO Labour Force survey
International Labour orgainisation
- from 80,000 households ask if out of work for 4 weeks and are able to start week in next 2 weeks
- then they are classified as ‘unemployed’
- then use this data as a sample to estmate the unemplyment rate for UK
describe the claimant count
- measures how many people are claiming benefits through job seekers allowance
what are the limitations around the two measures of unemployment?
- **ILO Labour Force Survey: ** not a representative, as is just a sample
- Claimant Count: not everyone seeks benefits, if have big savings then not allowed (underestimates)
ILO is the official measurement
what is under employment?
when one is currently working however
* working fewer hours than they want to
* underusing their skills
what are the 5 different types of unemployment?
- real wage/ classical unemployment
- structural unemployment
- cyclical/demand unemployment
- frictional unemployment
- seasonal unemployment
what is the balance of payments?
- record of payments between one country and the world
- record of all money flowing in and out of the country
what are the two accounts within the balnce of payment?
- current account
- capital and finanial account
what does the current account consist of?
- trade in goods
- trade in sevices
- invetsment income
- current transfers
what is the trade in goods and services?
- imports: coming in from foreign
- exports: going from country (hand made)
what does the current account measure?
inflows and outflows of money paid and recieved
* all imports: withdrawal/ leakages (negative entry)
* out exports : injection (positive entry)
what is investment income?
- rent/profit made on an investment abroad
the income that you get from an investment, it will appear as a positive transaction, increasing the current account
investment in properties, companies
what happens if investment income is paid/ recived from foreign countries?
- paid: negative (decreases current account)
- recieved: postitve (increases current account)
what are current transfers?
when money is sent abroad without anything (goods/ services) in return
eg: remittance, foreign aid
what is remittance?
relatives working abroad transfering money back home to families
what is a current account deficit, surplus and equalibrium?
- deficit: negative current account, more money leaving than entering
- surplus: positive
- equalibrium: zero