topic 9: key economic indicators

Question 1

sustainable economic growth

Answer 1

rate of econ growth that can be sustained w/o creating significant env problems (depletion of natural resources/ env degradation) for future generations

Question 2

inclusive econ growth

Answer 2

broad-based across all econ sectors and creates productive employment opt for majority of country’s population

Question 3

gross domestic product

Answer 3

total mkt value of all final goods and services newly produced within the geographic boundaries of an economy in a given time period

Question 4

real gdp vs nominal gdp

Answer 4

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 (%)

Question 5

real gdp per capita

Answer 5

real gdp/pop size

Question 6

real gross national income

Answer 6

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

Question 7

real gdp -> SOL

Answer 7

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

Question 8

real gdp -> econ perf

Answer 8

higher gdp growth rate -> economy is producing G&S at a faster rate -> suggests higher econ growth rate -> better econ performance

Question 9

limitations of real GDP-> mSOL

growth in real national income may be unevenly distributed

Answer 9

(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)

Question 10

limitations of real GDP -> mSOL

composition of national income differs

Answer 10

does not reveal the types of G&S that has been produced [non-consumption goods, econ. growth driven by net exports]

Question 11

limitations of real GDP -> mSOL

changes/diff in pop. size

Answer 11

alt: real national income per capita

Question 12

limitations of real GDP -> mSOL

non-monetary sectors

Answer 12

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

Question 13

limitations of real GDP -> mSOL

- availability of reliable data and approaches to accounting

Answer 13

challenges of collection in rural areas

Question 14

limitations of real GDP -> mSOL

does not reflect diff in prices

Answer 14

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

Question 15

limitations of national income stats -> non-mSOL

changes/diff in leisure hours

Answer 15

if real national income driven by workings working harder and for longer hours -> les leisure time and more stressed

Question 16

limitations of national income stats -> non-mSOL

diff in quality of env

Answer 16

real national income may increase at expense of env degradation

Question 17

limitations of national income stats -> non-mSOL

access to necessities

Answer 17

quality& access to education and healthcare

Question 18

alt measure of SOL: composite indicator

Answer 18

human development index (HDI)
accounts for PPP, literacy rates, life expectancy
1-highest development

Question 19

unemployment

Answer 19

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%

Question 20

unemployment rate -> econ. perf

Answer 20

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

Question 21

UN rate -> material SOL

Answer 21

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

Question 22

limitation of UN rate

UN rate as a lag indicator of current economic situation

Answer 22

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)

Question 23

limitation of UN rate

unreported, under-reported, illegal employment

Answer 23

some misreport/under report work status to evade tax/ continue receive govt transfer payments/ illegal job

Question 24

limitation of UN rate

dynamic pool of participants in labour force

Answer 24

• a lot of movement into and out of labour force [graduates/ older workers returning to work,, obtained employment but become discouraged]

Question 25

limitation of UN rate

discouraged workers

Answer 25

fall out of labour force but still computed

Question 26

limitation of UN rate

underemployment

Answer 26

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.

Question 27

price stability

Answer 27

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

Question 28

Consumer price index

Answer 28

weighted average of a price of basket of G&S purchased by average household

Question 29

inflation rate -> econ. perf

Answer 29

higher inflation rate deters investment due to added risks from rising costs (uncertainty), effect econ growth and productive capacity
- affect price competitiveness of exports

Question 30

inflation rate -> material SOL

Answer 30

• 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

Question 31

limitations of inflation rate as an indicator

Answer 31

1. difficult to choose representative basket of G&S
   - representative of average household consumption pattern
2. representative price for each item
3. allocating weights
4. data collection (rough estimate)
5. 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

Question 32

BOT -> econ perf

Answer 32

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

Question 33

BOT-> measure SOL

Answer 33

country exports more G&S, adds on to country AD and hence RNY, able to purchase more qty and quality of G&S

Question 34

limitations of using BOT

Answer 34

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