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econ > Theme 2:2.1-Measures of economic performance > Flashcards

Theme 2:2.1-Measures of economic performance Flashcards

1
Q

what is the difference between nominal and real value?

A

nominal values are actual prices that exist at the time

real value are the prices that are adjusted for inflation

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2
Q

what is actual economic growth measured by?

A

The percentage rate of growth of GDP.
GDP is the value of all goods and services produced in a country in 1 year.

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3
Q

what is GNI?

A

income flow between countries

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4
Q

how can we compare the rates of growth between countries over time?

A

HDI-summary index using life expectancy at birth, expected years of schooling for kids, mean years of schooling for adults and GNI per capita

Remittances-money sent

HPI-happy planet index includes life expectancy, wellbeing , inequality, ecological footprint

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5
Q

why is GNI better than GDP when determining standard of living?

A

GNI is:
-relatively straightforward and widely understood
-data is almost available for every country (can compare)
-can be calculated to provide average income in a country

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6
Q

what is the con of using GNI per capita when determining standard of living?

A

GNI per capita can be misleading as there are wide differences in the distribution of income.

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7
Q

what is Purchasing Power Parity(PPP)?

A

measures the total amount of goods/services that a single unit of a country’s currency can buy in another country(Big Mac Index)

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8
Q

Limitations of using GDP in comparing standards of living ?

A

-doesn’t consider informal economy
-increases in GDP may not be evenly distributed among population
-other measure need to be combined with GDP in order to judge living standards and welfare

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9
Q

What happened to the UK national happiness in March 2020?

A

average ratings of life satisfaction, happiness, and anxiety in the UK all deteriorated(first time since 2011 where all 3 measures significantly worsened when compared with the year before)

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10
Q

define inflation.

A

the increase in the overall level of prices in the economy. The average level of prices is measured initially and compared to the percentage rate of change in prices over time.

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11
Q

index numbers formula.

A

current value/base value X100

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12
Q

what is the consumer price index(CPI)?

A

an index used by the government when setting the inflation target since 2004.It consists of a total of 180,000 individual price quotes on 680 different products which are collected by the ONS each month.

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13
Q

what does the CPI aim to do ?

A

measure how inflation will affect the average family but individual households whose consumption pattern differs may experience inflation in different ways-e.g. dietary or religious reasons etc.

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14
Q

what is the formula for calculating inflation rates from CPI?

A

CPI new-CPI old / CPI new X100

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15
Q

what are the limitations of CPI?

A

-housing costs such as mortgage, interest payments, or rent are excluded(mortgages are a huge part of household spending)

-only 57% of households respond to the survey and they might not give accurate information

-There are regional differences (North and South divide) and not totally representative.

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16
Q

what is deflation?

A

a fall in average level of prices

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17
Q

what disinflation?

A

a decrease in the rate of inflation

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18
Q

what is hyperinflation?

A

a rapid average price increase in an economy

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19
Q

what causes demand-pull inflation?

A

occurs whenever aggregate demand shifts to the right
demand is grater than supply so suppliers rise prices to remove the excess demand

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20
Q

what causes cost-push inflation

A

occurs whenever costs of production increase in an economy. These may be because of a fall in exchange rates making imports more expensive or higher corporation taxes.

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21
Q

what is the effect of inflation on consumers?

A

-saving falls as price rise(people of working age are already underserving in the UK and inflation makes saving less attractive)
-standard of living may decline as the purchasing power of those on fixed incomes fall as prices rise

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22
Q

what is the effect of inflation on firms?

A

-loss of international competitiveness as exports become expensive and imports are relatively cheap BoP worsens
-increases uncertainty: investment from abroad may decrease a inflation erodes value of money so businesses wont buy into a currency falling in value

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23
Q

what is the effect of inflation on the government?

A

-inflation reduces real interest rate so cost of borrowing falls
-when prices are falling ,the economy can run into a viscous cycle of underinvestment and reduced spending
- pressure on the government to increase the value of the state pension and unemployment benefits and other welfare payments

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24
Q

what is the effect of inflation on workers?

A

-workers may expect high wages but firms don’t feel confident about paying higher costs.

25
Q

levels of employment vs rate of employment

A

levels of employment refers to the number of people in work and rate of employment refers to the proportion of people in work relative to the size of the population

26
Q

unemployment vs underemployment

A

unemployment refers to people in the workforce with no job at all whereas underemployment refers to those who are either employed part time or have jobs which where they don’t use up all their skills
people in part time jobs

27
Q

how was unemployment measured in the past and explain?

A

claimant count-number of people registered as unemployed and claiming unemployment benefits(JSA)

28
Q

what are the pros of the claimant count?

A
  • up to date (monthly)and cheap to collect data from existing records
  • not a survey so no sampling errors
29
Q

what are the cons of the claimant count?

A
  • hides real figures and excludes a number of the potential workforce
    -includes benefit cheats
30
Q

what is the current measure of unemployment?

A

the labour force survey –> identifies number of people available for work, and seeking work without a job

31
Q

what does the ILO define unemployment as?

A

people who are:
-without a job, want a job, have actively sought work in the last 4 weeks and are available to start in the next 2 weeks.
-out of work and have found a job waiting to start in 2 weeks

32
Q

what are the pros of ILO?

A

-more inclusive so more accurate
-large sample and is standardized by the OECD so can compare data with other countries.

33
Q

what are the cons of ILO?

A

-subject to sampling error

34
Q

what are the 4 causes of unemployment?

A

-structural
-frictional
-seasonal
-cyclical

35
Q

what is frictional unemployment?

A

occurs from the inevitable time delays in finding new employment in a free market.

36
Q

what is structural unemployment?

A

unemployment that arises from mismatch of skills or job opportunities (ford, skills not transferrable)

37
Q

what is seasonal unemployment?

A

times of the year when labour varies due to seasonal effects(ice cream truck, tourism)

38
Q

what is cyclical unemployment?

A

involuntary unemployment due to a lack of aggregate demand for goods and services(recession)

39
Q

what is real wage inflexibility?

A

when wages are set above the equilibrium level causing the supply of labour to be greater than demand.

40
Q

how does migration play a role in in skills for employment and unemployment?

A

-increases labour supply
-migrants come with new skills
-more working age population

41
Q

what is the effect of unemployment on consumers?

A

-less choice, lower quality

42
Q

what is net migration formula?

A

immigration-emigration

43
Q

what is the effect of unemployment on the economy?

A

-lost output, reduces potential growth
-waste of scarce resources, hours not worked lost forever.

44
Q

what is the effect of unemployment on firms?

A

+:
-bigger pool of surplus labour
-less pressure to pay high wages
-:

45
Q

what is the effect of unemployment on the government?

A

-lower tax revenue
-increased expenditure on benefits

46
Q

what is the effect of unemployment on society?

A

-high crime rates
-bad standard of living.

47
Q

define balance of payments.

A

a record of all the UK’s transactions with other countries.

48
Q

what is globalisation?

A

where economies become more interconnected due to rapid technological advancements and better transport links

49
Q

what is the current account and what are the 2 other components of BoP?

A

-transaction in goods and services with income payments and transfers
-capital account and financial account

50
Q

what is and inflow and outflow?

A

inflows of foreign currency is credit
outflows of foreign currency is debit

51
Q

what does a current account deficit and surplus indicate?

A

deficit-imports are greater than exports so current account is negative

surplus-exports are greater than imports so current account is positive.

52
Q

what happens to the interconnectedness of trade?

A

countries are more interdependent of each other to to world economies becoming more intergrated
e.g. people own more assets abroad

53
Q

what is the RPI?

A

the retail price index
similar to CPI but:
-includes housing costs
and doesn’t include the top 4% of earners whilst the CPI does.

54
Q

how does growth of money supply cause inflation?

A

-is there is too much money in the economy then people will want to spend it but if there is no increase in the supply then price will have to increase.

55
Q

what is the current account split into?

A

trade in goods:these are tangible
and
trade in services: these are intangible

56
Q

what are the governments 4 main macroeconomic objectives>

A

low and stable inflation rate
low unemployment
economic growth
BoP equilibrium

57
Q

what is the relationship between current account imbalances and other macroeconomic objectives?

A

high economic growth:
-can lead to rise in imports which worsens current account balance

58
Q
A

econ (37 decks)

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