Theme 2 - 2nd Learning Sequence - Measures Of Economic Perfomance Flashcards
Index number formula
Index number = raw number in period x 100 -/- raw number in base period
What are nominal values
Measurements made using prices that are current at the time a transaction takes place are known as measurements of nominal values
Economic growth
The ultimate aim of a society is to improve the well-being of citizens meaning that resources available in an economy need to expand through time to expand peoples choices. This requires a process of economic growth: an increase in the productive capacity of the economy.
What is economic growth characterised as on ppf
As an outwards shift on the ppf curve
GDP
Represent the total output of an economy during a period of time.
Can be seen as the total value added produced by firms in the domestic economy dug in a period , but it can also be measured by adding up total expenditures in the period.
GNI
Takes into account incomes from abroad
Can be used to compare average incomes across countries
PPP (purchasing power parity)
A measurement used to compare spending power between 2 or more nations
GDP per capita formula
GDP per capita = gdp in period / number of people
Limitations of real gdp measurement
Hidden economy - unpaid work isn’t captured in official figures
Inequality - GDP growth does’nt tell us how income is split across a population
Regional inequalities - GDP in certain areas may be significantly higher than the national average
Environmental impact - can affect standards of living
GDP/AD FORMULA
GDP = C + I + G + (X-M)
C- consumer spending
I - investment
G - government expenditure
x-m - net exports (exports - imports)
Inflation
Defined as an increase in the overall level of prices in an economy.
Inflation can be calculated as the percentage rate of change of prices over time.
deflation
Negative inflation
Disinflation
Rate of inflation falls however prices are still increasing
(Gradient shallower)
The process of calculating the rate of inflation in the uk using consumer price index
The ONS finds put what the British households buy through the living costs and food surgery.
They create an average basket of foods to track prices
The government will record the prices these goods are sold at in different shops in a price survey
The average inflation rate is the calculated
An index number is then given to the level o prices
The level of prices in one year is called ‘100’ and the change in prices is compared to this base figure.
Limitations of CPI when measuring inflation
Baskets may not represent all consumer spending habits
Different measures of inflation are used by different countries
Prone to inaccuracy/errors
Difficulty of past comparisons
Consumption habits may change in less than a year
3 causes of inflation
Demand pull inflation
Cost push inflation
Growth of the money supply
What is demand pull inflation
If the AD of goods/services rise and there is no increase in aggregate supply then demand-pull inflation is likely to occur
When there is too much demand, the price level , will rise leading to inflation
What is cost push inflation
A decrease in aggregate supply causes an increase in the general price level of goods/services within an economy. Reductions in aggregate supply are caused by supply side shocks.
Anything that causes a decrease in aggregate supply and an increase in firms costs of production will casue cost push inflation.
E.g. oil prices, wages, VAT, corporation tax.
Growth of the money supply affect on inflation
When the government print more money, there is an increase of cash within the economy.
Households have more money and therefore the demand for goods/services rises.
However if amount of goods for sale remain the same, then firms would see a greater increase in demand for the limited goods and would need to increase prices as a response.
There is more money chasing the same amount of goods which ultimately leads to inflation
-as the increase in the money supply is faster than the growth of real output.
Effect of inflation on consumers
Reduction in purchasing power
Will have a larger impact on lower income households
Effect of inflation on firms
One of the major problems of firms is the fact that it is likely to result in an increase in the interest rate.
An increase in interest rates will make it more expensive for firms to borrow money so can make it harder to fund day-to-day tasks,
Effects of inflation on the government
High inflation for the government can cause gdp growth to slow down, which leads to the government receiving lower tax revenues and increased level of borrowing.
Market interest rates also increase which causes government borrowing to become more expensive
Effects of inflation on workers
Workers may experience a fall in real incomes, if their incomes do not rise in line with inflation
Purchasing power falls as the price of goods and services rise whereas wages remain the same
People in employment includes:
Both those who are employed by firms or other organisations and also those who are self-employed
Those who are economically inactive:
Students
Those who have retired
Are sick or looking after family members
Discouraged workers
The claimant count
This measures the number of people claiming job seekers allowance in the uk
This can measure unemployment as people receiving benefits are unemplyed
The ILO survey
This is a survey given to a random sample of households within the UK, then households then answer the survey which determines whether they fit the ILO definition of unemployment
It is a worldwide measure of unemployment so makes it easier for international comparisons
It goes out to around 60,000 uk households
Drawbacks of claimant count
Disadvantage - it generally underestimates the real number of unemployed people. This is because not everybody claims unemployment benefits. Disadvantage - because unemployment benefits are controlled by the government, the figures can be manipulated.
