Theme 2: Measures of Economic performance

Question 1

Economic growth

Answer 1

Rise in the value of GDP (National output)

Question 2

Real GDP

Answer 2

Value of GDP adjusted for inflation.

Question 3

Nominal GDP

Answer 3

Value of GDP without being adjusted for inflation.

Question 4

Total GDP

Answer 4

Combined monetary value of all goods and services produced within a country’s borders during a specific time period

Question 5

GDP per capita

Answer 5

GDP divided by population

Question 6

Volume of GDP

Answer 6

GDP adjusted for inflation. Size of the basket of goods and the real level of GDP.

Question 7

Value of GDP

Answer 7

Monetary value of GDP at prices of the day. Volume times current price level.

Question 8

Two ways national income can be measured?

Answer 8

Gross national product and Gross national income.

Question 9

Gross national product (GNP)

Answer 9

The market value of all products produced in an annum by the labour and property supplied by the citizens of one country.

Question 10

Gross National Income (GNI)

Answer 10

Sum of value added by all producers who reside in a nation, plus net overseas interest payments and dividends.

Question 11

Purchasing Power Parity

Answer 11

The theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent.

Question 12

The limitations of GDP to compare living standards.

Answer 12

1- Doesn’t give indication of distribution. 2- GDP may need to be recalculated in terms of purchasing power. 3- Doesn’t include hidden markets eg black market. 4- GDP gives no indication of welfare.

Question 13

According to ONS what 6 factors effect the wellbeing of people in the UK?

Answer 13

NAME?

Question 14

Inflation

Answer 14

The sustained rise in the general price level over time.

Question 15

Deflation

Answer 15

Where the average price level in the economy falls. Negative inflation rate

Question 16

Disinflation

Answer 16

a reduction in the rate of inflation

Question 17

How is inflation calculated?

Answer 17

consumer price index

Question 18

4 key points on CPI

Answer 18

1- Survey 2- Weighted basket of goods 3- Measures average price change of the goods 4- updated annually

Question 19

Limitations of CPI when measuring inflation

Answer 19

Only average household. Slow to respond.

Question 20

Two measures of inflation

Answer 20

CPI and RPI

Question 21

Retail price index

Answer 21

Includes housing costs eg mortgage payments. Excludes top 4% of earners and low income pensioners.

Question 22

Two causes of inflation

Answer 22

demand pull inflation and cost push inflation

Question 23

Demand pull inflation

Answer 23

Aggregate demand is growing unsustainably.

Question 24

Main triggers of demand pull inflation?

Answer 24

1-Depreciation of the exchange rate. 2-Fiscal stimulus eg lower taxes or more government spending. 3- Lower interest rates 4- High growth in UK exports

Question 25

Cost push inflation

Answer 25

When prices rise due to an increase in the cost of production.

Question 26

Main triggers of cost push inflation

Answer 26

NAME?

Question 27

Hyperinflation

Answer 27

A very rapid rise in the price level; an extremely high rate of inflation.

Question 28

Effect of high inflation on consumers

Answer 28

NAME?

Question 29

Effect of high inflation on firms

Answer 29

NAME?

Question 30

Effect of high inflation on the Government

Answer 30

increase the value of the state pension and welfare payments because the cost of living is increasing.

Question 31

Effect of high inflation on workers

Answer 31

NAME?

Question 32

How is unemployment measured?

Answer 32

Claimant count and labour force survey.

Question 33

Why is the labour force survey more accurate?

Answer 33

Takes into account part time unemployment, they are less likely to claim on the claimant count.

Question 34

Unemployment

Answer 34

are those able and willing to work, but are not employed. They are actively seeking work and usually looking to start within the next two weeks

Question 35

Underemployment

Answer 35

those who have a job, but their labour is not used to its full productive potential. Those who are in part-time work, but are looking for a full-time jobs are underemployed.

Question 36

What are the effects of unemployment on consumers?

Answer 36

Less disposable income and their standard of living might fall. Psychological consequences of losing job.

Question 37

What are the effects of unemployment on firms

Answer 37

Firms have a larger supply of labour to employ from. Causing wages to fall, which would help firms reduce their costs.

Question 38

What are the effects of unemployment on workers?

Answer 38

May lose existing skills if not used and may see a fall in their wages.

Question 39

What are the effects of unemployment on the government?

Answer 39

Government might have to spend more on job seekers allowance. Receive less tax revenue.

Question 40

What are the effects of unemployment on society?

Answer 40

Workers could have produced goods and services and could have negative externalities such as vandalism if the unemployment rate increases.

Question 41

Types of unemployment

Answer 41

Structural, frictional, seasonal, cyclical and real wage inflexibility.

Question 42

structural unemployment

Answer 42

This occurs with a long term decline in demand for the goods and services in an industry, which costs jobs.

Question 43

Frictional unemployment

Answer 43

This is the time between leaving a job and looking for another job.

Question 44

seasonal unemployment

Answer 44

This occurs during certain points in the year, usually around summer and winter.

Question 45

cyclical unemployment

Answer 45

This is caused by a lack of demand for goods and services, and it usually occurs during periods of economic decline or recessions.

Question 46

Real wage inflexibility unemployment

Answer 46

Wages above the market equilibrium may cause unemployment. Classical economists argue that by letting wages fall to the equilibrium level, there would be no unemployment.

Question 47

Exports

Answer 47

goods and services sold to foreign countries, and are positive in the balance of payments. This is because they are an inflow of money.

Question 48

Imports

Answer 48

Goods and services bought from foreign countries, and they are negative on the balance of payments. They are an outflow of money.

Question 49

What is the balance of payments made up of?

Answer 49

current account, capital and official financial account.

Question 50

The UK has a current account…

Answer 50

deficit

Question 51

UK government’s macro economic objectives are to have…

Answer 51

Full employment, low and stable inflation, sustainable current account on the balance of payments, and sustainable economic growth.

Question 52

In the UK, during periods of economic decline or recessions, the current account deficit ………. This is because consumer spending falls.

Answer 52

falls

Question 53

In theory, the sum of all countries’ trade balances should be…

Answer 53

Zero, since what one country exports will be imported by another country.