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A-Level Economics > 2.1 - Measures Of Economic Performance > Flashcards

2.1 - Measures Of Economic Performance Flashcards

1
Q

What Is Economic Growth?
(3 Points)

A

~ Rate of change of output
~ An increase in the long term productive potential of the country
~ An increase in the amount of goods and services a country produces

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2
Q

How Can Economic Growth Be Typically Measured?

A

By the percentage change in the real GDP per annum.

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3
Q

How Can Economic Growth Be Shown?

A

Through a shift in the PPF.

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4
Q

What Is GDP?

A

~ Is the output of an economy
~ The total value of goods and services produced in a country within a year

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5
Q

What Are The 2 Approaches That Can Be Used To Measure GDP?

A

~ The expenditure approach
~ The income approach

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6
Q

What Is The Expenditure Approach?

A

Adds up the value of all the expenditure in the economy.

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7
Q

What Is The Income Approach?

A

Adds up the rewards for the factors of production used.

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8
Q

Why Should The Income And Expenditure Approach Provide The Same Figure?

A

Because one party’s expenditure is another’s income.

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9
Q

What Does The Value Of GDP Mean?

A

It’s monetary worth.

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10
Q

What Does The Volume Of GDP Mean?

A

It’s physical number.

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11
Q

What Does Nominal Mean?

A

Means the metric has not been adjusted for inflation.

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12
Q

What Is Nominal GDP?

A

Is the actual value of all goods and services produced in the economy in a one year period.

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13
Q

What Is Real GDP?

A

Is the value of all goods and services produced in an economy in a one year period and is adjusted for inflation.

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14
Q

What Is The Difference Between Real GDP And Nominal GDP?

A

~ Real GDP strips out inflation
~ Nominal GDP does not strip out inflation

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15
Q

What Is GDP Per Capita?

A

Shows the mean wealth of each citizen in a country, making it easier to compare living standards.

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16
Q

What Is The Formula For GDP Per Capita?

A

GDP / Population

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17
Q

Why Might GDP Not Be The Best Way To Measure A Country’s Output Or Wealth?

A

Because it measures the value of production within a country’s borders and does not consider the income earned by its citizens working outside the border.

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18
Q

What Does GDP Stand For?

A

Gross domestic product.

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19
Q

What Does GNI Stand For?

A

Gross national income.

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20
Q

What Does GNP Stand For?

A

Gross national product.

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21
Q

What Does GNI Mean?

A

Measures the income earned by its citizens operating outside of the country borders and also adds the GDP.

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22
Q

What Does GNP Mean?

A

The value of goods and services over a period of time through labour or property supplied by its citizens of a country both domestically and overseas.

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23
Q

Why Is National Income Statistics Useful For Making Comparisons Between Countries?

A

~ They provide insights of the effectiveness of government policies
~ They allow judgements to be made about the relative wealth and standard of living within a country
~ They allow comparisons to be made over the same or different time periods

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24
Q

What Do Changing National Income Levels Show Us?

A

They show us whether the country has grown or shrunk over a period of time.

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25
Q

Why Does GDP Per Capita Provide Better Information Than Real GDP?

A

It takes the population differences into account.

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26
Q

What Are Purchasing Power Parities (PPP)?

A

They are a conversion factor that can be applied to GDP, GNI and GNP.

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27
Q

What Do PPPs Calculate?

A

It calculates the relative purchasing power of different currencies.

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28
Q

What Do PPPs Show?

A

Shows the number of units of a country’s currency that is required to buy a product in the local economy.

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29
Q

What Is The Aim Of The PPP?

A

Is to help make a more accurate standard of living comparison between countries where goods and services cost different amounts.

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30
Q

What Are The 5 Limitations Of Using GDP For Comparisons?

A

~ Inaccuracy of data
~ Inequalities
~ Quality of goods and services
~ Comparing different currencies
~ Spending

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31
Q

Who Are National Happiness Measured By?

A

The office of national statistics.

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32
Q

What Does GDP Focus On?

A

Production.

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33
Q

What Does Happiness Focus On?

A

~ Health
~ Relationships
~ Environment
~ Education
~ Satisfaction at work and living conditions

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34
Q

How Are Happiness And Income Related?

A

Positively related at low incomes.

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35
Q

Are Higher Levels Of Income Associated With Increases In Happiness?

A

No.

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36
Q

What Are The 3 Types Of Inflation?

A

~ Inflation
~ Disinflation
~ Deflation

37
Q

What Is Inflation?

A

Is the general sustained increase of the average price level of goods and services, which erodes the purchasing power of money.

38
Q

How Is The Average Price Level Measured?

A

By checking the prices of a basket of goods and services that an average household will purchase each month.

39
Q

What Is The Inflation Rate?

A

The change in the average price levels in a given time period.

40
Q

How Is The Inflation Rate Calculated?

A

By using an index with 100 as the base year.

41
Q

What Is The Target Rate Of Inflation In The UK?

A

2% per annum.

42
Q

Why Is Low Inflation Better?

A

Because it is a sign of economic growth.

43
Q

What Is Deflation?

A

Is the fall of the average level of prices for goods and services, and indicates a slow down in the rate of growth of output in the economy.

44
Q

When Does Deflation Occur?

A

When the percentage change in prices falls below 0%.

45
Q

What Is Disinflation?

A

Occurs when the average price level is still rising, but at a lower rate than before.

46
Q

What Are The 2 Inflation Indices The UK Uses?

A

~ Consumer price index (CPI)
~ Retail price index (RPI)

47
Q

What Is Consumer Price Index (CPI)?

A

Takes into account how much is spent on each item meaning that they are weighted.

48
Q

What Are The Limitations Of CPI?

A

~ Not totally representative
~ Does not include the price of housing
~ Difficult to make comparisons with historic data

49
Q

What Is Retail Price Index (RPI)?

A

Includes housing costs such as mortgage, payments and council tax.

50
Q

What Does RPI Take Into Account?

A

The fact that when prices rise, people will switch to a product that has gone up by less. Therefore CPI is generally lower than RPI.

51
Q

What Does RPI Exclude?

A

The top 4% of income earners and low income pensioners as they are not considered average households.

52
Q

When Does Cost Push Inflation Occur?

A

When the cost of production increases, leading to higher prices for goods and services.

53
Q

What Does Rising Cost Of Inputs To The Production Force Mean For Producers, What Way Does This Shift The AD Curve?

A

~ Leads to producers passing on the higher costs to consumers in the form of higher prices
~ Shifts the AD Curve To The Left

54
Q

What Might A Decrease In AS Cause For Consumers?

A

Prices to rise.

55
Q

When Businesses Find That Their Cost Have Risen, What Would They Do?

A

They will put their prices up to maintain their profit margins.

56
Q

What Are The Causes Of Cost Push Inflation?

A

~ Increase in wages
~ Higher prices for raw materials
~ Higher taxes
~ Higher import prices
~ Natural disasters

57
Q

When Does Demand Pull Inflation Occur?

A

When the total demand for goods and services increases to exceed the supply of goods and services.

58
Q

If Any Factor Of AD Was To Increase What Would Happen To Inflation?

A

Increase.

59
Q

What Causes Demand Pull Inflation?

A

~ Reduced taxation
~ Lower interest rates
~ Rise in consumer spending
~ Improved availability of credit
~ Weak exchange rate
~ Fast growth in other countries
~ Increase in certainty

60
Q

What Are The Effects Of Inflation On Consumers?

A

~ Less money to spend, causing a fall in living standards
~ People in debt will be able to pay it off at a cheaper value, but for those who are owed money will lose out as they will get back less money
~ People who are saved money will lose out as their money is worth less
~ There are psychological effects on consumers from inflation, which could lead to a decrease in spending from those consumers

61
Q

What Are The Effects Of Inflation On Firms?

A

~ If there is higher inflation in Britain than other countries, British goods will become more expensive as well as less competitive making it harder to export them which could affect the balance of payments
~ Deflation encourages people to postpone their purchases, leading to a fall in demand for goods meaning that firms profit and business confidence will fall
~ All types of inflation are difficult to predict, meaning firms cannot plan for the future
~ Firms might have to calculate new prices, maybe even change their labelling or menus which can be costly

62
Q

What Are The Effects Of Inflation On Workers?

A

~ If workers do not receive yearly pay rises of the rate of inflation, then they would be worse off and their living standards will decrease
~ Deflation can cause some workers to lose their jobs as there is a lack of demand meaning firms see a fall in profit and have to decrease staff to cut costs

63
Q

What Is Unemployment?

A

~ The number of people looking for work but cannot find a job at a certain point in time
~ Wanting to work, able to work but unable to find a job

64
Q

What Is Unemployment Level?

A

The number of people who are unemployed.

65
Q

What Is Unemployment Rate?

A

The number of people unemployed as a percentage of the labour force.

66
Q

How Do You Calculate Unemployment Rate?

A

Unemployed / Labour Force x 100

67
Q

What Is Underemployed?

A

The underuse of workers.

68
Q

Give Examples Of Being Underemployed

A

~ Wanting to work more hours than the worker currently works
~ Working in a job that requires lower skills than they have

69
Q

What Is The Labour Force?

A

Consists of all workers actively working and the unemployed who are seeking work, usually between the ages of 16-65.

70
Q

What Is The Non Labour Force?

A

Includes all those not seeking work.

71
Q

What Is Economically Inactive?

A

Are those people who are between 16-65 and not working or seeking work.

72
Q

What Approaches Are Used To Measure Unemployment In The UK?

A

~ Labour force survey
~ The claimant count

73
Q

Give All The Features Of The Claimant Count

A

~ Is the number of people receiving benefits for being unemployed
~ It counts the number of people claiming JSA in the UK
~ It provides the number of claimants on particular days each month and the numbers joining and leaving the count each month
~ There are more stringent requirements to be considered unemployed then with the labour force survey
~ It requires claimants to meet regularly with a ‘work coach’

74
Q

What Are The Limitations Of The Claimant Count?

A

~ Under 18s and over 60s do not count
~ Not everyone who is eligible will sign up
~ Changing criteria for JSA
~ Some people who claim JSA aren’t actively seeking work

75
Q

Give All The Features Of The Labour Force Survey

A

~ Sample of people living in households and is a legal requirement for every country in the EU
~ Quarterly survey of approximately 60,000 households compiled by the office of national statistics studying the unemployment circumstances of the UK
~ It asks questions about personal circumstances and activity in the labour market to class people as employed, unemployed or inactive
~ Respondents self-determine if they are unemployed based on the labour force criteria
~ The same survey is used globally so its useful for making global comparisons

76
Q

What Are The Limitations Of The Labour Force Survey?

A

~ Costly to compile
~ It quarterly, not up to date information
~ Subject to sampling
~ Not everybody is honest

77
Q

How Do You Calculate The Unemployment Rate?

A

No. Actively Seeking / Total Labour Force x 100

78
Q

How Do You Calculate The Employment Rate?

A

No. In Employment / Population Of Working Age x 100

79
Q

How Do You Calculate The Labour Force Participation Rate?

A

Labour Force / Total Population x 100

80
Q

How Do You Calculate The Inactivity Rate?

A

Inactive People Of Working Age / Working Age Population x 100

81
Q

What Are The 8 Types Of Unemployment?

A

~ Structural
-> Regional
-> Sectoral
-> Technological
~ Seasonal
~ Cyclical / demand deficient
~ Frictional
~ Real wage inflexibility

82
Q

When Does Structural Unemployment Occur?

A

~ When there is a mismatch between jobs and skills in the economy
~ Usually happens as the structure of the economy changes and there is no longer a need for a specific type of worker

83
Q

Why is Structural Unemployment A More Serious Type Of Unemployment?

A

It is a long term decline in demand in an industry leading to reduction in employment, perhaps due to increasing in international competition or technology.

84
Q

Is Structural Unemployment The Most Difficult To Reduce?

A

Yes.

85
Q

What Are The Different Types Of Structural Unemployment?

A

~ Regional
~ Sectoral
~ Technological

86
Q

What Is Regional Unemployment?

A

Where certain areas of the country suffer from very low levels of unemployment due to industry closures.

87
Q

What Is Sectoral Unemployment?

A

Where one sector (Primary, secondary and tertiary) suffers a dramatic fall in employment.

88
Q

What Is Technological Unemployment?

A

Where an improvement in technology means that all jobs are replaced.

89
Q

What Is Seasonal Unemployment?

A

When work is only available at certain times of the year during different seasons, as the certain seasons come to an end labour is not required.

A-Level Economics (10 decks)

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