2.1 - Measures of economic performance

Question 1

What is GDP?

Answer 1

the value of all goods/services produced in a given time

Question 2

Real GDP

Answer 2

figures with removed inflation (‘at constant prices’)

Question 3

Nominal GDP

Answer 3

figures includes inflation

Question 4

GDP equation

Answer 4

GDP ÷ population = per capita (removes population impact)

Question 5

What is economic growth?

Answer 5

an increase or decrease in GDP over time

Question 6

What is value?

Answer 6

price × quantity (revenue)

Question 7

What is volume?

Answer 7

output at constant prices

Question 8

What is PPP?

Answer 8

Purchasing Power Parity (PPP) - adjusts GDP to reflect what money can actually buy in different countries

Question 9

GDP limitations

Answer 9

• benefits of economic growth may only apply for a small proportion of the population
• high GDP does not equal happiness for people

Question 10

What is GDP? (compared to GNP)

Answer 10

regardless of nationality

Question 11

What is GNP?

Answer 11

made by British people, regardless of location

Question 12

What is the business cycle?

Answer 12

Economic/trade cycle, boom-bust cycle.
The rise and fall of economic activity

Question 13

What is the balance of payments?

Answer 13

current account surplus = inflows > outflows
current account deficit = outflows > inflows

Question 14

What is the current account?

Answer 14

trade and income transfers and current transfers

Question 15

What are income transfers?

Answer 15

inflows and outflows of money to home countries

Question 16

What are current transfers?

Answer 16

inflows and outflows of loans or grants

Question 17

What are the UKs biggest imports? (outflows)

Answer 17

goods - oil, machines, minerals
services - tourism

Question 18

What are the UKs biggest exports?
(inflows)

Answer 18

goods - pharmaceuticals
services - financial services

Question 19

What are the 4 sections of the Current Account?

Answer 19

1) Trade in goods - imports and exports (net trade)
2) Trade in services - invisible, tangible goods
3) investment and employment income (primary income)
Investment income - Interests, Profits, Dividends (IPDs)
Employment income - wages being sent in and out
4) Transfers (secondary income) - gov transfers overseas EU

Each section has its own balance, which combine to give the overall value of the current account

Question 20

What is unemployment?

Answer 20

currently out of work, actively seeking

Question 21

Underemployment

Answer 21

have a job, but want to work more

Question 22

Effects of unemployment

Answer 22

• increased of unemployment -> decrease AD -> low growth
• adversely affects people’s psychological wellbeing
• government decreases tax revenue, needs to increase GS on welfare

Question 23

What are the 2 measures of unemployment?

Answer 23

ILO measure and the Claimant Count

Question 24

What is the ILO measure?

Answer 24

• International Labour Organisation
• survey of 80,000 individuals
• reduces claimant count
• unemployment as a percentage (%) of labour force

Question 25

What is the Claimant Count?

Answer 25

How many people claim jobseekers allowance in a given period of time

Question 26

Types of unemployment

Answer 26

Structural, frictional, seasonal, cyclical (demand defficient), classical

Question 27

Structural unemployment

Answer 27

when workers don't have the right transferable skills

Question 28

Frictional unemployment

Answer 28

workers are moving between jobs

Question 29

Seasonal unemployment

Answer 29

demand for a good/service is low at a certain time of the year (E.g: Tourism)

Question 30

Cyclical unemployment

Answer 30

lose jobs due to slow in economic growth (demand defficient)

Question 31

Classical unemployment

Answer 31

when supply of labour does not adjust to decrease in demand for labour Wages stay high -> unemployment

Question 32

What is inflation?

Answer 32

increased cost of living/ general price level over time

Question 33

What is deflation?

Answer 33

prices actually fall (negative inflation rate)

Question 34

What is disinflation?

Answer 34

decrease inflation rate, increase prices at a smaller rate

Question 35

What is hyperinflation?

Answer 35

large increases in price level

Question 36

Causes of inflation

Answer 36

1) Demand pull 2) Cost push 3) Growth of money supply

Question 37

Measures of inflation

Answer 37

RPI and CPI

Question 38

What is the RPI?

Answer 38

Retail Price Index - includes housing costs and uses arithmetic mean, gives a higher estimation of inflation

Question 39

What is the CPI?

Answer 39

Consumer Price Index - 'basket' of everyday goods, however prices could change in quality, increase in substitutes and temporary shocks to inflation figures

Question 40

What are the effects of inflation?

Answer 40

• Creates uncertainty -> consumers decrease spending -> Decrease AD • Loss of international competitiveness -> exports decrease • savings are now worth less - people on fixed incomes will see a decrease in PPP • Menu costs - firms need to update all prices • shoe leather costs - consumers will have to spend more time and energy trying to find cheaper options