Theme 2 - 2nd Learning Sequence - Measures Of Economic Perfomance

Question 1

Index number formula

Answer 1

Index number = raw number in period x 100 -/- raw number in base period

Question 2

What are nominal values

Answer 2

Measurements made using prices that are current at the time a transaction takes place are known as measurements of nominal values

Question 3

Economic growth

Answer 3

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.

Question 4

What is economic growth characterised as on ppf

Answer 4

As an outwards shift on the ppf curve

Question 5

GDP

Answer 5

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.

Question 6

GNI

Answer 6

Takes into account incomes from abroad
Can be used to compare average incomes across countries

Question 7

PPP (purchasing power parity)

Answer 7

A measurement used to compare spending power between 2 or more nations

Question 8

GDP per capita formula

Answer 8

GDP per capita = gdp in period / number of people

Question 9

Limitations of real gdp measurement

Answer 9

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

Question 10

GDP/AD FORMULA

Answer 10

GDP = C + I + G + (X-M)
C- consumer spending
I - investment
G - government expenditure
x-m - net exports (exports - imports)

Question 11

Inflation

Answer 11

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.

Question 12

deflation

Answer 12

Negative inflation

Question 13

Disinflation

Answer 13

Rate of inflation falls however prices are still increasing
(Gradient shallower)

Question 14

The process of calculating the rate of inflation in the uk using consumer price index

Answer 14

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.

Question 15

Limitations of CPI when measuring inflation

Answer 15

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

Question 16

3 causes of inflation

Answer 16

Demand pull inflation
Cost push inflation
Growth of the money supply

Question 17

What is demand pull inflation

Answer 17

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

Question 18

What is cost push inflation

Answer 18

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.

Question 19

Growth of the money supply affect on inflation

Answer 19

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.

Question 20

Effect of inflation on consumers

Answer 20

Reduction in purchasing power
Will have a larger impact on lower income households

Question 21

Effect of inflation on firms

Answer 21

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,

Question 22

Effects of inflation on the government

Answer 22

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

Question 23

Effects of inflation on workers

Answer 23

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

Question 24

People in employment includes:

Answer 24

Both those who are employed by firms or other organisations and also those who are self-employed

Question 25

Those who are economically inactive:

Answer 25

Students
Those who have retired
Are sick or looking after family members
Discouraged workers

Question 26

The claimant count

Answer 26

This measures the number of people claiming job seekers allowance in the uk
This can measure unemployment as people receiving benefits are unemplyed

Question 27

The ILO survey

Answer 27

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

Question 28

Drawbacks of claimant count

Answer 28

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.