Theme 2: Measures of Economic performance Flashcards
Economic growth
Rise in the value of GDP (National output)
Real GDP
Value of GDP adjusted for inflation.
Nominal GDP
Value of GDP without being adjusted for inflation.
Total GDP
Combined monetary value of all goods and services produced within a country’s borders during a specific time period
GDP per capita
GDP divided by population
Volume of GDP
GDP adjusted for inflation. Size of the basket of goods and the real level of GDP.
Value of GDP
Monetary value of GDP at prices of the day. Volume times current price level.
Two ways national income can be measured?
Gross national product and Gross national income.
Gross national product (GNP)
The market value of all products produced in an annum by the labour and property supplied by the citizens of one country.
Gross National Income (GNI)
Sum of value added by all producers who reside in a nation, plus net overseas interest payments and dividends.
Purchasing Power Parity
The theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent.
The limitations of GDP to compare living standards.
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.
According to ONS what 6 factors effect the wellbeing of people in the UK?
NAME?
Inflation
The sustained rise in the general price level over time.
Deflation
Where the average price level in the economy falls. Negative inflation rate
Disinflation
a reduction in the rate of inflation
How is inflation calculated?
consumer price index
4 key points on CPI
1- Survey 2- Weighted basket of goods 3- Measures average price change of the goods 4- updated annually
Limitations of CPI when measuring inflation
Only average household. Slow to respond.
Two measures of inflation
CPI and RPI
Retail price index
Includes housing costs eg mortgage payments. Excludes top 4% of earners and low income pensioners.
Two causes of inflation
demand pull inflation and cost push inflation
Demand pull inflation
Aggregate demand is growing unsustainably.
Main triggers of demand pull inflation?
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
Cost push inflation
When prices rise due to an increase in the cost of production.
Main triggers of cost push inflation
NAME?
Hyperinflation
A very rapid rise in the price level; an extremely high rate of inflation.
Effect of high inflation on consumers
NAME?
Effect of high inflation on firms
NAME?
Effect of high inflation on the Government
increase the value of the state pension and welfare payments because the cost of living is increasing.
Effect of high inflation on workers
NAME?
How is unemployment measured?
Claimant count and labour force survey.
Why is the labour force survey more accurate?
Takes into account part time unemployment, they are less likely to claim on the claimant count.
Unemployment
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
Underemployment
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.
What are the effects of unemployment on consumers?
Less disposable income and their standard of living might fall. Psychological consequences of losing job.
What are the effects of unemployment on firms
Firms have a larger supply of labour to employ from. Causing wages to fall, which would help firms reduce their costs.
What are the effects of unemployment on workers?
May lose existing skills if not used and may see a fall in their wages.
What are the effects of unemployment on the government?
Government might have to spend more on job seekers allowance. Receive less tax revenue.
What are the effects of unemployment on society?
Workers could have produced goods and services and could have negative externalities such as vandalism if the unemployment rate increases.
Types of unemployment
Structural, frictional, seasonal, cyclical and real wage inflexibility.
structural unemployment
This occurs with a long term decline in demand for the goods and services in an industry, which costs jobs.
Frictional unemployment
This is the time between leaving a job and looking for another job.
seasonal unemployment
This occurs during certain points in the year, usually around summer and winter.
cyclical unemployment
This is caused by a lack of demand for goods and services, and it usually occurs during periods of economic decline or recessions.
Real wage inflexibility unemployment
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.
Exports
goods and services sold to foreign countries, and are positive in the balance of payments. This is because they are an inflow of money.
Imports
Goods and services bought from foreign countries, and they are negative on the balance of payments. They are an outflow of money.
What is the balance of payments made up of?
current account, capital and official financial account.
The UK has a current account…
deficit
UK government’s macro economic objectives are to have…
Full employment, low and stable inflation, sustainable current account on the balance of payments, and sustainable economic growth.
In the UK, during periods of economic decline or recessions, the current account deficit ………. This is because consumer spending falls.
falls
In theory, the sum of all countries’ trade balances should be…
Zero, since what one country exports will be imported by another country.
