2.1 Performance Measures

Question 1

What is GDP?

Answer 1

The market value of all goods and services produced within an economy within a year

Question 2

Why are PPP adjustments made?

Answer 2

To account for differences in cost of living between countries

Question 3

What are the problems of using GDP as a measure?

Answer 3

• doesn’t take into account improving quality of technological goods.
• doesn’t include unofficial work
• inequality
  Increase in other problems eg pollution

Question 4

Why does the ONS measure national well being?

Answer 4

Due to issues relating GDP and happiness

Question 5

What is the Easterlin paradox?

Answer 5

At a point in time happiness varies with income, but over the long term rates of happiness and income are not significantly related (marginal gains in happiness fall - people only care about relative as well as absolute incomes).

Question 6

How is inflation measured?

Answer 6

CPI and RPI meausres - shopping basket of over 700 goods, weighted to reflect item importance, mainly derbived from ONS living costs and food survey

Question 7

What are the measures of unemployment?

Answer 7

Claimant count and ILO measure

Question 8

Which is higher in economically prosperous times the claimant count or ILO?

Answer 8

ILO is higher than the claimant count (opposite way around in an economic slowdown)

Question 9

What is an under employed worker?

Answer 9

Someone who is in employment but wants to work more hours

Question 10

What are economically inactive people?

Answer 10

Those who are not available for work or not looking for work

Question 11

Why does a 1% increase in consumption have a bigger impact than a 1% increase in government spending?

Answer 11

Consumption is a larger component of aggregate demand (roughly 60%)

Question 12

What proportion of AD is net exports?

Answer 12

1%

Question 13

What proportion of AD is consumption?

Answer 13

60%

Question 14

What proportion of AD is gov spending?

Answer 14

Around 25%

Question 15

What proportion of AD is investment?

Answer 15

15%

Question 16

What factors influence the size of fiscal deficits?

Answer 16

State of the economy, housing market (influences revenues from stamp duties), political priorities and unplanned events

Question 17

What do the size of fiscal deficits have an impact on?

Answer 17

Interest rates, debt servicing, inter generational equality, inflation, countries credit rating and FDI

Question 18

Why do higher incomes traditionally lead to greater subjective happiness?

Answer 18

Greater ability to repay debt, wealth creation, goods and services spending that improves standard of living

Question 19

Why does increasing the level of tax not always lead to an increase in the level of taxation?

Answer 19

The laffer curve (there is a disincentive to work at higher tax rates)