Theme 2: Measures of Economic performance Flashcards
What is inflation?
a sustained increase in the general price level.
What is hyperinflation?
Refers to very high and increasing inflation, typically it has to be at least above 50%
What are the 2 types of inflation?
Demand pull
Cost push
What is Delfation?
when there is a sustained decrease in the general price level.
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