2.1 Measures of economic performance

Question 1

What is economic growth, and how is it measured?

Answer 1

An increase in the value of an economy’s goods and services. It can be measured using GDP which calculates the total value of all goods and services within a country.

Question 2

What is real?

Answer 2

Real is a term that is measuring the GDP per capita while taking into account inflation to give the actual value of the money at the time.

Question 3

What is nominal?

Answer 3

Nominal is the term that measured the GDP per capita but without taking into account the inflation at that period in time.

Question 4

What is the difference between Total GDP and GDP per capita?

Answer 4

Total GDP is the total value of the goods and services provided within a country however GDP per capita is when the GDP is shared evenly between the population of the country.

Question 5

How does GNI differ from GDP?

Answer 5

GDP is the value of the goods and services within the country however GNI is when it includes the country’s citizens that are abroad.

Question 6

Why is GDP a good measure of the economy?

Answer 6

GDP can tell a country a good estimate of the value of the economy which can easily be compared to other countries, and the higher the GDP the more money being spent on an economy, so standards of living are higher as people are buying more goods and services.

Question 7

Why is GDP not a good measure of the economy?

Answer 7

GDP is very crude and will not adjust for the inflation at the current time of measurement meaning the money might sound like a lot however realistically people can buy very little with it.

Question 8

Define Purchase Power Parties.

Answer 8

Purchase Power Parties are the people in a community who are spending the most money on goods and services.

Question 9

What is the purpose of Purchase Power Parties?

Answer 9

These people can represent the rate of inflation because they buy the most goods meaning we can gather the most data of goods from then about the rise in prices due to inflation or deflation.

Question 10

How does the UK government measure national wellbeing?

Answer 10

They use the office for national statistics, which has been in place since 2011.

Question 11

What is the relationship with happiness and income?

Answer 11

The higher income people have the higher happiness they have.

Question 12

What is inflation?

Answer 12

An increase in prices of goods over time.

Question 13

What is deflation?

Answer 13

A decrease in prices of goods over time.

Question 14

What is disinflation?

Answer 14

A decrease in the rate of inflation over time.

Question 15

Using the consumer price index how is inflation measured?

Answer 15

They look at a basket of goods and compare its current value to the value of it in the last quarter.

Question 16

What are limitations of the consumer price index when measuring inflation?

Answer 16

It doesn’t take into account the quality or how it was made fore example using fair trade.

Question 17

What is consumer price index?

Answer 17

An index of the variation in prices for retail goods and other items.

Question 18

What is retail price index?

Answer 18

An index of the variation in the prices of retail goods and other items.

Question 19

What is demand pull inflation?

Answer 19

When the demand increases the price also increases and so does the quantity of the product.

Question 20

What is cost push inflation?

Answer 20

When the price increases because the quantity decreases.

Question 21

How does more money in an economy lead to inflation?

Answer 21

The cost of goods will increase because the value of what one note was a week ago would have decreased.

Question 22

How does inflation to individuals?

Answer 22

People will have less spending power because the value of their money is less, Prices for goods will increase, Employees wages won’t change for inflation, It will reduce the value of debts and savings.

Question 23

What impact does inflation have on firms?

Answer 23

There is a loss of competition, A rising cost of labor, less investments as people are less confident, Higher prices which leads to greater revenue.

Question 24

How does inflation impact the government?

Answer 24

It can cause political unease, lead to riots and strikes, however the debt value decreases.

Question 25

How does inflation help an economy?

Answer 25

The low inflation objective of 2% is not met, low investments that will lead to unemployment and a lack of competition.

Question 26

What is unemployment?

Answer 26

The percentage of people who are willing and able to work but aren’t.

Question 27

What is under employment?

Answer 27

When peoples skills aren’t being used to the level they can be used at.

Question 28

What is the employment rate?

Answer 28

The percentage of working able people that are actually working.

Question 29

What is unemployment rate?

Answer 29

The amount of people that are not working in the population of able working people.

Question 30

What is inactivity rate?

Answer 30

The ratio of people that are not in work to people who are in work.

Question 31

What is the claimant count?

Answer 31

A measure of the number of people that are claiming benefits from the government for unemployment reasons.

Question 32

What is the UK labor force survey?

Answer 32

They ask private households to fill a survey so they can manage the labor markets.

Question 33

Why will the UK labor force survey always be higher than the claimant count?

Answer 33

Because not everyone who is in need of claiming benefits actually claim benefits which means the number of forms filled out will be less.

Question 34

How does migration affect unemployment rates?

Answer 34

Unemployment rates will decrease because the reason people move around the country can be for more job opportunities so more people become employed.

Question 35

How does unemployment affect individuals?

Answer 35

It will lower living standards, there will be a loss in spending confidence which could lead to people becoming mentally ill.

Question 36

How does unemployment affect firms?

Answer 36

It will make it easier to higher people for a cheaper price however also less sales as people are losing their spending confidence.

Question 37

How does unemployment affect society?

Answer 37

It will create less revenue from tax, inequality will increase, and more money will be invested on benefits instead of improving buildings or transport.

Question 38

What are the four components of the balance of payments?

Answer 38

Trade in goods
Trade in services
Investment incomes
Transfers

Question 39

What is a current account surplus and deficit?

Answer 39

A current account surplus is when there are more exports than imports whereas a current account deficit is when there are more imports than exports.

Question 40

Why cant all countries achieve a current account surplus?

Answer 40

When one country goes into a surplus another country must go into a deficit.

Question 41

What are benefits of export led growth?

Answer 41

It helps raise GDP per capita incomes and this will reduce extreme poverty, mainly in LIC and NEE. This means your people are not importing many goods but are relying on expansion in the demand for their exports.

Question 42

How can the UK current account improve when there is economic growth in EU countries?

Answer 42

it can improve the UK’s current account balance because the other countries want to import more goods leading to the Uk exports to rise and as a result a more even level between imports and outports so that the current account is either in a surplus or a smaller deficit.

Question 43

How can real incomes influence current account balance?

Answer 43

As the real incomes increases imports rise as they have more spending power and therefore the current account balance will decrease and get into a larger deficit.

Question 44

How can exchange rate influence the current account balance?

Answer 44

If there is a high exchange rate, then there is also more imports as it will be cheaper and therefore the current account balance will go into a larger deficit.

Question 45

How can the state of the world economy influence current account balance?

Answer 45

If there is more spending power due to the increase in the economic state of the world, then there would be a current account surplus in the countries importing the most goods.

Question 46

How can tariffs influence a current account balance?

Answer 46

Tarrifs on exports would lead to a current account surplus less exports would take place.

Question 47

How can non-price factors influence a current account balance?

Answer 47

This is the demand for a product and so if the demand increases, then there would be a current account surplus if the demand was in other countries as there would be more exports than imports.