Theme 2 Textbook Flashcards
Define nominal GDP
Value of GDP based on current prices, taking no account of changing prices through time
Define real GDP
An estimate of the volume of GDP taking account of changing prices through time
Define an index number
Device used for comparing the value of a variable in one period with a base observation
Define economic growth
An expansion in the productive capacity of the economy
Define GDP
A measure of the economic activity carried out in the domestic economy over a period
Define GNI (gross national income)
GDP plus net income from abroad
Define GNI per capita
The average level of GNI per head of population
Strengths of GNI per capita
An agreed international standard
Takes into account the population size
Weaknesses of GNI per capita
Does not consider quality of life
The quality of data collection may vary across countries
Define inflation
A sustained rise in the general price level in an economy
Define CPI (consumer price index)
A measure of the general level of prices in the UK
What are compiled in the CPI and how are they useful
Weights for each item
Allows index to be updated each year and remain representative
What causes inflation
Prices rising due to demand increasing
Prices rising due to increasing costs for firms
What is demand pull inflation
Consumer demand increases, putting upward pressure on prices
What is cost push inflation
Costs for firms increasing, increasing the price
What caused demand pull inflation in 2022
The economy was emerging from the pandemic, increasing consumer demand
What caused cost push inflation in 2022
Supply chains were interrupted during the pandemic
Conflict in Ukraine added more supply side pressure, especially oil and gas supplies
Define deflation
A fall in the average level of prices
Define disinflation
A fall in the rate of inflation
What was the decrease in inflation from 2008 to 2009
2008 inflation = 4%
2009 inflation = -0.5%
Why can deflation be perceived as bad
People expect prices to continue to fall
They may postpone purchases in the expectation of being able to buy at a lower price in the future
Resulting in lower demand, perpetuating the recession
What are the two ways of measuring unemployment
Claimant count of unemployment
ILO unemployment rate
Define claimant count of unemployment
Number of people claiming the Jobseeker’s Allowance each month
Define ILO unemployment rate
A measure of the percentage of the workforce who are without jobs, but are willing and able to work
Disadvantage of ILO measurement
Sample extrapolated up to represent whole UK
Sample not fully representative
Evaluate costs of unemployment on firms
Positive:
Lower demand for their products
So lower sales and revenues so lower profits
Negative:
Less pressure to pay higher wages