topic 9: key economic indicators Flashcards
sustainable economic growth
rate of econ growth that can be sustained w/o creating significant env problems (depletion of natural resources/ env degradation) for future generations
inclusive econ growth
broad-based across all econ sectors and creates productive employment opt for majority of country’s population
gross domestic product
total mkt value of all final goods and services newly produced within the geographic boundaries of an economy in a given time period
real gdp vs nominal gdp
real gdp: output measured at base year prices
nominal: pricexoutput component, measured at current mkt prices
real gdp=nominal gdp/gdp deflator x 100%
change in real gdp= nominal gdp(%)-inflation rate (%)
real gdp per capita
real gdp/pop size
real gross national income
measures income of country’s residents regardless of where income comes from
real gni = factor incomes earned by residents overseas - factor incomes earned by non-residents
real gdp -> SOL
higher PP, consumers can enjoy higher qty&quality G&S -> more needs and wants can be satisfied
- lower stress levels, life expectancy, standard of healthcare
higher national income -> govt able to collect tax revenue
real gdp -> econ perf
higher gdp growth rate -> economy is producing G&S at a faster rate -> suggests higher econ growth rate -> better econ performance
limitations of real GDP-> mSOL
growth in real national income may be unevenly distributed
(e. g. when economy becomes more capital intensive -> larger wage disparity) -> does not reflect increase in material SOL for every1
alt: gini coefficient measures extent to which distribution of income deviates from perfectly equal distribution (0)
limitations of real GDP -> mSOL
composition of national income differs
does not reveal the types of G&S that has been produced [non-consumption goods, econ. growth driven by net exports]
limitations of real GDP -> mSOL
changes/diff in pop. size
alt: real national income per capita
limitations of real GDP -> mSOL
non-monetary sectors
do not capture econ activity in informal sectors even tho such sectors may contribute substantially to G&S avail for consumption and hence material SOL
e.g. farming communities in rural regions
/illegal sectors
limitations of real GDP -> mSOL
- availability of reliable data and approaches to accounting
challenges of collection in rural areas
limitations of real GDP -> mSOL
does not reflect diff in prices
does not reflect diff in prices across countries
- amt of G&S avail for consumption across diff countries differ for a given income
should account for how much G&S can be bought by residents in each country with respective incomes using purchasing power parity exchange rates (PPP) which is measured using common basket of good. equalises pp of diff currencies by accounting for diff in cost of living across countries
limitations of national income stats -> non-mSOL
changes/diff in leisure hours
if real national income driven by workings working harder and for longer hours -> les leisure time and more stressed
limitations of national income stats -> non-mSOL
diff in quality of env
real national income may increase at expense of env degradation
limitations of national income stats -> non-mSOL
access to necessities
quality& access to education and healthcare
alt measure of SOL: composite indicator
human development index (HDI)
accounts for PPP, literacy rates, life expectancy
1-highest development
unemployment
situation to where ppl are unable to find employment, even though they are of legal working age and are both capable and willing to work at current wage rates.
unemployment rate: no of unemployed/labour force x 100%
unemployment rate -> econ. perf
labour resources are more fully utilised, economy is producing at a point closer to PPC, there is fewer idle resources, leading to productive efficiency and ability to achieve allocative efficiency -> higher levels of economic activity.
high UN rate: associated w low consumption and investment spending, lowering econ growth prospect, increase pressure on govt to spend more on UN benefits and receive less tax revenue
UN rate -> material SOL
UN rate: fall in household income -> switch to consumer lower quality &qty G&S
fulfill immediate financial needs, less emphasis on education and training -> compromise future earning potential
limitation of UN rate
UN rate as a lag indicator of current economic situation
employers reluctant to lay off workers immediately when economy is bad(take time to train workers)/hire new workers at early sign of improvement (uncertainty)
limitation of UN rate
unreported, under-reported, illegal employment
some misreport/under report work status to evade tax/ continue receive govt transfer payments/ illegal job
limitation of UN rate
dynamic pool of participants in labour force
- a lot of movement into and out of labour force [graduates/ older workers returning to work,, obtained employment but become discouraged]
limitation of UN rate
discouraged workers
fall out of labour force but still computed
limitation of UN rate
underemployment
labour under-utilised (working fewer works/ labour that do not utilise skills) but not considered unemployment. UN rates do not fully illustrate extent of resouce underutilisation in economy.
price stability
low and stable inflation - low and sustained rise in GPL over time
- deflation (falling GPL) -ve inflation rate
- disinflation (positive but falling inflation rate)
- positive and increasing inflation
Consumer price index
weighted average of a price of basket of G&S purchased by average household
inflation rate -> econ. perf
higher inflation rate deters investment due to added risks from rising costs (uncertainty), effect econ growth and productive capacity
- affect price competitiveness of exports
inflation rate -> material SOL
- fall in real incomes of household -> fall in PP -> fall in qty of G&S they can consumer -> fall in material SOL
- high inflation discourages savings -> prices expected to increase, spend now -> less fund avail to borrow for investments, capital accumulation slow down, affect qty and quality of G&S produced and consumed
limitations of inflation rate as an indicator
- difficult to choose representative basket of G&S
- representative of average household consumption pattern - representative price for each item
- allocating weights
- data collection (rough estimate)
- limited in long-term comparison - overtime, households deviate from initial basket due to changes in household consumption patterns and change in prices not reflected in CPI (new products), switch away from good
BOT -> econ perf
BOT surplus -> country has better performance in area of international trade
surplus -> higher net export boosts econ. growth and higher RNY and hence lower employment
deficit -> country has to finance consumption by borrowing from other countries -> reduced ability to save dampens country’s investment for future econ. growth
BOT-> measure SOL
country exports more G&S, adds on to country AD and hence RNY, able to purchase more qty and quality of G&S
limitations of using BOT
rising BOT deficit doesn’t mean decline on material SOL (more imports -> more G&S for consumption)
but importing of capital goods of initial stage of development can boost potential growth -> higher SOL in the future
/ indicator of strong econ. growth, RNY increase-> higher M
