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Macroeconomics AS Level > 2.1 Measures Of Economic Growth > Flashcards

2.1 Measures Of Economic Growth Flashcards

1
Q

What is economic growth?

A

Occurs where there is a rise in the value of GDP
Leads to higher living standards and more employments opportunities

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2
Q

What is GDP?

A

Measures the quantity of goods and services produced in an economy

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3
Q

What is real GDP?

A

The value of GDP adjusted for inflation

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4
Q

What is nominal GDP?

A

Value of GDP without being adjusted for inflation

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5
Q

GDP per capita.

A

Average measure of individual incomes in the economy.

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6
Q

What is GNI?

A

Total income generated by a countries FOP’s regardless of where the FOP’s are located.

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7
Q

What is GNP?

A

Value of goods and services produced within a period of time through labour or property supplied by citizens both domestically and overseas.
Goods produced by citizens whether they are in the country or not.

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8
Q

What is volume of GDP?

A

GDP adjusted for inflation. Size of the basket of goods and services and the real level of GDP

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9
Q

What is value of GDP?

A

Monetary value of GDP at prices of the day. Nominal figure.

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10
Q

What is PPP?

A

An exchange rate of one currency which compares how much a typical basket of goods in a country costs compared to other countries

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11
Q

Limitations of GDP to compare standards of living.

A
  • Black market activity not included
  • Errors can take place in calculation
  • Doesn’t give an indication of distribution of income
  • No indication of welfare (e.g. happiness)
  • Just looks at quantity of output, not quality- if they were included, living standards lower
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12
Q

What are 6 factors which affect national well-being?

A
  1. Real GDP per capita
  2. Health
  3. Life- expectancy
  4. Having someone to count on
  5. Perceived freedom to make life choices
  6. Freedom from corruption and generosity
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13
Q

What is the Easterlin Paradox?

A

Happiness and income are positively related as lower incomes.
Rich people aren’t necessarily happy and increase in income won’t make them happier.
An increase in consumption of material goods will increase if basic needs aren’t met. Once these are met an increase in consumption doesn’t equal happiness

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14
Q

What is inflation?

A

General rise in prices across the economy

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15
Q

Deflation.

A

General fall in prices across the economy

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16
Q

Disinflation.

A

Fall in the rate of inflation

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17
Q

What is CPI?

A

Measures average rate of inflation for all households

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18
Q

How to calculate the inflation rate?

A
  1. Family expenditure survey used
  2. Weighted basket of goods and services. Weighted according to how much income spent on each item
  3. Measures average price change of goods
  4. Updates annually
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19
Q

What is RPI?

A

Alternative measure of inflation
Includes housing prices, so higher CPI
Excludes top 4% of earners and low income pensioners

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20
Q

Limitations of CPI

A
  • Not fully representative
  • Doesn’t include housing costs
  • Updates basket too slow
  • Different demographics have different spending patterns
21
Q

Types/Causes of inflation.

A
  1. Demand pull
  2. Cost push
  3. Growth of the money supply
22
Q

Costs of inflation.

A
  • Reduction in purchasing power
  • Menu costs
  • Shoe leather costs
23
Q

Effects of inflation on consumers

A

GOOD- Those in debt benefit- pay it off cheaper
BAD- if incomes don’t rise with inflation, less to spend so living standard falls
BAD- those who are owned money worse off
BAD- consumers who have saved will lose out
BAD- psychological effects

24
Q

Effects of inflation on firm.

A
  • Menu costs
  • Harder to predict consumer spending in future- impact on business confidence
  • If inflation higher than other countries, exports expensive, less competitive, BOP deficit
  • high inflation= less investment
  • Deflation also bad as incentives consumers to postpone purchase in hope for even more price decrease
25
Q

Effects of inflation on government

A
  • if gov fails to change tax in line with inflation, gov revenue falls
  • has to increase value of state pension and welfare payments as cost of living increasing
    GOOD- if gov doesn’t change personal income tax allowance, real gov incomes rise but taxpayers have less money
26
Q

Effects of inflation on workers.

A
  • workers redundancy if deflation
  • if workers don’t receive yearly pay rise, in line with inflation, living standards decrease
27
Q

What is the balance of payments ?

A

Record of all financial dealings over a period of time between economic garnets of one country and all other countries.
Made up of: current account, capital and financial accounts.

28
Q

What is the current account?

A

Records payments for the purchases and sales of goods and services.
Measures : trade in goods, trade in services, primary income (profits, remittances) and secondary income (transfer payments)

29
Q

What are exports?

A

Goods and services sold to foreign countries
Inflow of money

30
Q

What are imports?

A

Goods and services bought from foreign countries.
Outflow of money

31
Q

What is a current account surplus?

A

Exports > imports
Current balance positive

32
Q

What is a current account deficit?

A

Exports < imports
Negative current balance

33
Q

The relationship between current account imbalances and other macroeconomic objectives.

A
  • objectives: full employment, low, stable inflation, sustainable current account on BOP, sustainable economic growth
  • By selling more exports to foreign countries, the UK will have a greater inflow of money into the circular flow of income. This will increase AD and improve the rate of economic growth.
  • In the UK, during periods of economic decline or recessions, the current account deficit falls. This is because consumer spending falls.
  • During periods of economic growth, when consumers have higher incomes and they can afford to consume more, there is a larger deficit on the current account
34
Q

The interconnectedness of economies through international trade.

A
  • In theory, the sum of all countries’ trade balances should be zero, since what one country exports will be imported by another country.
  • If the UK’s main export market, such as the EU, faces an economic downturn then demand for UK goods and services will fall, since consumers in the EU are less able to afford imports.
  • International trade has meant countries have become interdependent. Therefore, the economic conditions in one country affect another country, since the quantity they export or import will change.
35
Q

Unemployed?

A

Consist of those of working age who are willing and able to work, actively seeking work but don’t have a job

36
Q

Underemployed?

A

Are those who have a job, but their labour is not used to full productive potential

37
Q

Economically inactive.

A

Those not actively looking for work
E.g. children, disabled, carers for elderly, retired

38
Q

Measures of unemployment.

A
  1. Claimant count
  2. LFS
39
Q

What is the claimant count?

A

Count no. Of people claiming unemployment benefits, such as JSA.

40
Q

What is LFS?

A
  • survey carried out by ILO who work out unemployed, employed and economically active
41
Q

Drawbacks for claimant count.

A

Difficult to compare between countries
Not everyone will claim
Not everyone is eligible (those with partners on high incomes not eligible)

42
Q

Drawback for LFS.

A

Sampling size small
Cost
The under-employed included

43
Q

Unemployment and employment: effects on consumers

A

Less disposable income, standard of living lower
Psychological consequences of job losses

44
Q

Employment and unemployment: effect on firms

A

GOOD- increase in unemployment rate, firms have large supply of labour to employ from so can decrease wages
Bad- if consumers spend less, firms have less profit
BAD- firms have to spend money to retrain workers if they’ve been job searching for that long

45
Q

Employment and unemployment: effects on workers

A
  • increase in unemployment= waste of workers resources
  • those in jobs will see wages decrease
46
Q

Employment and unemployment: effects on society

A
  • opportunity cost
  • negative externalities of crime and vandalism
47
Q

Employment and unemployment: effects on government

A
  • if unemployment rate lower, gov has to spend more on JSA: opportunity cost
  • less revenue from income tax and indirect taxes since consumers have less disposable income
48
Q

Causes of unemployment.

A
  1. Cyclical unemployment (AD decreases, creating less need for labour)
  2. Structural unemployment (to do with immobility of labour and long term decrease in demand for goods and services in an industry)
  3. Frictional unemployment (occurs when workers between jobs)
  4. Seasonal unemployment (work dependent on season)
  5. Real wage inflexibility (classical economists believe if firms have flexibility over wages, unemployment=0)
49
Q

Significance of migration and skills.

A

Migrants increase supply of labour.
Migrant labour beings done wages of lowest paid in domestic labour market.
They bring high quality of skills to domestic workforce.

Macroeconomics AS Level (6 decks)

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