2.1 Measures of Economic Performance Flashcards

Question

Easterlin Paradox

Answer 1

An increase in consumption of material goods will increase happiness if basic needs are not met, but once these needs are met, an increase in consumption will not increase long term happiness

Answer 2

General increase of prices in the economy which erodes the purchasing power of money Low inflation is considered to be better than high inflation

Answer 3

Fall of prices and indicates a slowdown in the rate of growth of output in the economy

Answer 4

Reduction in the rate of inflation

Answer 5

Nominal figures must be changed into real figures to make comparisons Done by choosing a base year and adjusting all other figures into equivalent figures

Answer 6

Consumer Price Index (CPI) Retail Price Index (RPI)

Answer 7

(Current CPI - Previous CPI) / Previous CPI * 100

Answer 8

(New Figure / Base Figure) * 100

Answer 9

Measure of households’ purchasing power with the family expenditure survey (FES)

Answer 10

Finds what consumers spend their income on Creates a basket of goods and weighs goods according to how much income is spent on each item Basket is updated each year to account for changes in spending patterns

Answer 11

Impossible to account for all goods => not completely representative Does not include price of housing Difficult to make comparisons with historical data as figure is more recent than RPI

Answer 12

Similar to CPI Includes housing costs Excludes top 4% and low income pensioners as they are not average CPI takes into account price changes result in switching of product to substitute goods while RPI does not

Answer 13

Demand Pull Cost Push Growth of Money Supply

Answer 14

Prices in a market are determined by demand and supply A shift in either causes price to change Increase in AD pushes price up Inflation can therefore be caused by an increase in AD If any factor which increases AS was to increase, inflation would increase

Answer 15

While an increase in AD pushes prices up, a decrease in AS also pushes prices up When businesses find costs have risen, they increase prices to maintain profit margins When a factor which decreases AS increases, prices increase Increase prices leads to increased inflation

Answer 16

When there is too much money in the economy, inflation increases If people have access to money, they will want to spend it If there is no increase in AS, prices rise Government can also increase money printed and decisions to increase government borrowing can also increase money supply Fisher Equation and Bank Multiplier

Answer 17

MV = PT M is money supply V is speed of money circulating in economy P is price level T is number of transactions Increase in money supply will lead to an increase in price level, ceteris paribus

Answer 18

Fall in living standards if incomes do not rise Those in debt can pay off price which is of cheaper value but those who are owed money lose because money they get back is of lower value Psychological effects affecting spending

Answer 19

If British inflation is higher, goods become more expensive meaning they become less internationally competitive making it difficult to export - affects BOP Deflation encourages postpone of purchases Difficult to predict inflation New prices have to be calculated

Answer 20

If governments fail to change excise taxes in line with inflation then real government revenue falls If fail to change personal income tax allowances, then real government income increases and taxpayers have less money

Answer 21

Living standard decreases if there are no yearly pay rises - weaker union members mostly affected Could lead to loss of jobs as there is a lack of demand and firms need to maintain profit margin

Answer 22

Claimant Count International Labour Organisation and UK Labour Force Survey (ILO and LFS)

Answer 23

Number of people receiving benefits for being unemployment Provides the number of claimants on participial day each month the numbers joining and leaving the count each month

Answer 24

Office of National Statistics (ONS) uses ILO definition of unemployment and employed Through ILO, anyone over 16 can be classed as employed, unemployed or economically inactive

Answer 25

1 hour paid work a week Temporarily away from work (holiday) Government supported training scheme 15 hours unpaid work for family business

Answer 26

Those of working age without work Able to work and seeking work and have actively sought work in last 4 weeks and are available to start work in the next 2 weeks

Answer 27

Neither employed nor unemployed People of working age not seeking employment Of working age who are unable to work

Answer 28

Sample of people living in households and is a legal requirement for every country in the EU Asks questions about personal circumstances and activity in the labour market to class people as employed, unemployed or inactive Only an estimate as it is a sample

Answer 29

Claimant Count includes those working in hidden economy or fraudulently claiming benefits Some people aren’t eligible for benefits so appear on LFS but not CC => LFS is higher than CC Rates can be going in different directions

Answer 30

Both underestimate figures Do not include: - Working part time but want to work full time - On government training schemes who prefer employment - Classed as sick or disabled - Not actively looking for jobs but would take one if offered Hidden Unemployed

Answer 31

Employed and unemployed Engaged in labour market People employers can look to recruit

Answer 32

Unemployed and inactive

Answer 33

Employment Rate - Percentage of population of working age who are employed Unemployment Rate - Percentage of economically active who are unemployed

Answer 34

Percentage of population of working age who are economically active Percentage of population of working age who are inactive

Answer 35

Those in part time or zero hour contracts who prefer to be full time Self employed but prefer to be employees In jobs below their skill level Not included in any unemployment statistics Increases during recessions as hours are reduced

Answer 36

Increases in inactivity will decrease size of labour force causing a fall in productive potential of country. Lower GDP and lower tax revenues as less people are working However, decreases in inactivity could result in more being unemployed if there are no available jobs

Answer 37

Frictional Unemployment Structural Unemployment Seasonal Unemployment Cyclical Unemployment Real Wage Inflexibility

Answer 38

Moving between jobs Due to new workers entering labour market or people choosing to leave previous job May take a while to locate and gain a job they are willing to accept Short term

Answer 39

Long term decline in demand in an industry leading to reduction in employment Due to increasing international competition or technology Demand for labour is lower than supply Lack of geographical and occupational mobility means people remain unemployed Different Types

Answer 40

Regional Unemployment Sectoral Unemployment Technological Unemployment

Answer 41

Certain areas of a country suffer from low levels of employment due to industry closures Made even worse when loss of jobs mean a fall in demand for other businesses in the area forcing more closures and job losses

Answer 42

Where one sector suffers a dramatic fall in employment

Answer 43

Where an improvement in technology leads to jobs being replaced

Answer 44

Some employment is strongly seasonal in demand Once the time of year passes, labour force is drastically reduced Little can be done to prevent this from occurring in a free market economy

Answer 45

Due to general lack of demand of goods and services within the country Keynesian Demand Deficient Unemployment When there is a reccession or sever slowdown in economic growth, there is rising unemployment due to closures and business failures Due to decrease in demand

Answer 46

Result of real wages being above their market clearing level leading to excess supply of labour Workers may be prepared to work for less than minimum wage but it is illegal so unemployed workers cannot get a job Economists believe minimum wage risks creating unemployment in industries where international competition is sever - little evidence yet Could be caused by some workers thinking they receive more in welfare benefits than low wage jobs

Answer 47

Increase in net inward migration tends to lead to increased jobs Most people come to UK, working age and often take low skilled jobs and are less likely to claim benefits Due to circular flow of income, immigrants’ spending creates jobs and employment increases Leads to lower wages Foreign workers leads to increased supply of labour => price equilibrium of labour is reduced More competition for works => affects low skilled

Answer 48

Higher skills needed to work in developed economies Need to increase skill of workforce over time Structural unemployment is causes by a lack of skills If firms do no train staff, government has to step in to correct market failure but this is costly => increase in long term unemployment Migrant workers may fill shortages if skills fit

Answer 49

Loss of income => decline in living standards Suffer from stigma of being unemployed and feel degraded by process to receive benefits => stress Long term unemployed find it difficult to get jobs due to loss of skills Those in jobs suffer from low job security as they may be made redundant or see a fall in wages

Answer 50

Decrease in demand for goods (depends on income elasticity of demand) => profit falls Smaller pool of skilled workers to employ due to loss of skills from long term unemployed Offer low wages as more people will accept

Answer 51

Lose out as shopping centres tend to be run down and don’t offer range compared to areas with low unemployment Unemployed consumers have less to spend Firms may lower prices and put on sales to increase demand

Answer 52

Fall in tax revenues and higher spending on welfare payments => opportunity cost Increase in budget deficit

Answer 53

Social depreciation, correlation between crime and social dislocation Fall in demand for local goods and services => fall in income => further unemployment Loss of potential national output, representing inefficient use of scarce resources => negative effect on LRAS and not achieving desired PPF Fall in national output

Answer 54

Record of all financial dealings over a period of time between economic agents of one country and all other country

Answer 55

Purchasing of foreign goods and services Money goes out Negative on BOP

Answer 56

Selling of goods and services to foreign consumers Money comes in Positive on BOP

Answer 57

Current Account Capital and Financial Account Money flowing into the country is positive Money flowing out the country is negative

Answer 58

Trade in Goods Trade in Services Income and Current Transfers

Answer 59

Visible and can be physically seen (tangible) Goods that are traded Different between visible exports and imports is known as balance of trade

Answer 60

Invisible as they cannot be seen (intangible)

Answer 61

Wages, interests profit or dividends Current transfers usually done by governments and are when they transfer money into or out of overseas organisations Split into primary and secondary incomes

Answer 62

Result of loans of the factors of production abroad Interest Profits Dividends

Answer 63

Range of mainly government transfers to overseas organisations

Answer 64

Balance of trade + Balance of invisibles + Net income and current transfers

Answer 65

Surplus: When exports are greater than imports Balance is positive Deficit: When imports are greater than exports Balance in negative

Answer 66

Low unemployment Low and stable inflation Economic growth at a similar rate to other economies Balance of payment equilibrium (including current account balance)

Answer 67

High economic growth means current account becomes a deficit as there is increased import due to increased demand and it is during times of high unemployment that the current account deficit tends to improve Governments tend to want export led growth which causes economic growth, high employment and improve current account balance although it could lead to inflation

Answer 68

Proportion of output of an individual economy which is traded internationally is growing Many more people own assets in other countries Increasing migration More technology being shared on a faster basis Means countries become more interdependent so a change in economic condition of one affect another In theory, all current balances should add up to zero as what one country exports, another imports

2.1 Measures of Economic Performance Flashcards

(92 cards)