2.1 - measures of economic performance Flashcards
(87 cards)
1
Q
2.1.1
what is inflation?
A
-the rate of inflation is a sustained increase in the cost of living or the general price level leading to a fall in the purchasing power of money
2
Q
what is economic growth?
A
-an increase in economic activity
-usually measured in GDP
-generally implies higher living standards
-It signifies an expansion of an economy’s production capacity and is a key indicator of its overall economic health.
3
Q
measuring economic growth?
A
Economic growth is typically measured by calculating the percentage change in real GDP over a specific period, such as a year.
The formula for growth rate is: Growth Rate = [(GDP at Time 2 - GDP at Time 1) / GDP at Time 1] × 100.
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Q
index number?
A
-shows a change in a no of costs
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Q
what is income?
A
- a flow of money going to the FOP
1 - wages and salaries
2 - money received from benefits
6
Q
what is wealth?
A
-accumulation of scarce resources
-measures value of all the assets of worth owned by a person
7
Q
circular flow of income?
A
- refers to the fact that income essentially flows from households to firms by purchasing goods/services and then back to households as wages
8
Q
what happens when households consume more?
A
-level of economic activity increases and eventually greater returns are paid via higher wages
-more income can be ‘injected’
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Q
measuring economic growth?
A
GDP
gross domestic produce
10
Q
3 ways of calculating GDP?
A
national output = national expenditure [AD] = national income
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Q
real GDP?
A
: Real values adjust for inflation and reflect changes in the quantity of goods and services produced.
12
Q
nominal GDP?
A
: Nominal values do not adjust for inflation and represent current market prices.
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Q
total?
A
Total values represent the aggregate sum of a variable for a given population or area.
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Q
per capita?
A
Per capita values represent the average amount per person and are calculated by dividing the total by the population.
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Q
value?
A
Value represents the monetary worth of goods and services produced.
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Q
volume?
A
Volume measures the physical quantity of goods and services produced, disregarding their monetary value.
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Q
what does GDP measure?
A
-the value of goods produced here
18
Q
what is GNP?
A
gross national product
GDP + net property income from abroad
eg dividends,interest,profit
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Q
what is GNI?
A
-gross national income
GNI includes the total income earned by a country’s residents and businesses, both domestically and abroad.
It is a broader measure than GDP and considers income earned from overseas investments and remittances.
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Q
net income?
A
-add income earned abroad and sent to the UK and subtract income earned in the UK and sent abroad
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Q
remittances?
A
-measured by subtracting and adding the flows
called gross national income - GNI
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Q
Comparison of Rates of Growth Between Countries and Over Time
- Cross-Country Comparisons
A
Comparing growth rates between countries helps assess relative economic performance.
It can reveal disparities in development and highlight factors contributing to growth.
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Q
Comparison of Rates of Growth Between Countries and Over Time
- Long-Term Trends
A
Examining growth rates over time reveals economic patterns and trends.
Long-term analysis can identify periods of economic expansion, recession, or stagnation.
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Q
purchasing power parity?
A
-“basket of goods” approach
-compares price of a range of goods in the country adjusted for the exchange rates
-gives indication of relative levels of ‘real’ income
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what are purchasing power parities?
PPPs are exchange rates that equalize the purchasing power of different currencies for a common basket of goods.
They account for price differences between countries and facilitate meaningful international comparisons.
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F) Limitations of Using GDP to Compare Living Standards
1. income distribution
2. non-market activities
3. quality of life
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F) Limitations of Using GDP to Compare Living Standards;
income distribution
GDP per capita does not account for income inequality, and a high GDP may conceal disparities in living standards.
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F) Limitations of Using GDP to Compare Living Standards;
non-market activities?
GDP excludes non-market activities like household labour and informal economies, leading to an incomplete picture of living standards.
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F) Limitations of Using GDP to Compare Living Standards;
quality of life?
GDP does not measure factors such as healthcare, education, environmental quality, and overall well-being.
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income inequality?
-the unequal distribution of income [ earnings ] or wealth [ net worth ] in a society
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easterlin paradox?
-states that at a point in time happiness varies directly with income
#-hence, a paradox as over time, ;omg term growth rates of happiness and income are not significantly related
[you are happier when you feel richer than others]
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what is poverty?
-a state or condition in which a person or community lacks the financial resources and essentials for a certain standard of living
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what is "absolute" poverty?
-a condition characterised by severe deprivation of basic human needs
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what is "relative" poverty?
-when households receive 50% less than average household incomes
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G) National Happiness
1. UK National Wellbeing
Some countries, including the UK, have explored measures of national wellbeing to complement GDP.
These measures consider factors like life satisfaction, mental health, and social connections.
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G) National Happiness
2. Relationship Between Real Incomes and Subjective Happiness
Research suggests that while higher incomes are associated with increased happiness up to a point, the relationship between income and happiness diminishes beyond a certain income level.
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2.1.2 [inflation]
what is inflation?
Inflation refers to the sustained increase in the general price level of goods and services in an economy over time.
It leads to a decrease in the purchasing power of money.
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deflation?
Deflation is the opposite of inflation, characterized by a sustained decrease in the general price level.
It increases the purchasing power of money but can discourage spending and investment.
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disinflation?
Disinflation occurs when the rate of inflation declines but remains positive.
Prices are still rising, but at a slower rate than before.
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. Consumer Prices Index (CPI)?
CPI is a widely used measure of inflation in the UK.
It tracks changes in the prices of a basket of goods and services purchased by an average household.
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Calculating CPI Inflation?
The formula for CPI inflation is: CPI Inflation Rate = [(Current CPI - Previous CPI) / Previous CPI] × 100.
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Limitations of CPI in Measuring Inflation?
1. substitution bias
2. quality changes
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Limitations of CPI in Measuring Inflation;
substitution bias
CPI assumes constant consumption patterns, whereas consumers often adjust their purchases in response to changing prices.
This can lead to an overestimation of inflation.
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Limitations of CPI in Measuring Inflation;
quality changes
CPI may not adequately account for quality improvements in goods and services over time.
This can result in an overestimation of price increases.
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D) Retail Prices Index (RPI) as an Alternative Measure of Inflation
1. Retail Prices Index (RPI)?
RPI is another measure of inflation in the UK that includes a broader range of expenditures than CPI.
It is used for various purposes, including index-linked bonds and some pension calculations.
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how does RPI differ from CPI?
RPI tends to produce a higher inflation rate than CPI because it includes housing costs and uses a different formula.
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Demand-Pull Inflation?
Demand-pull inflation occurs when aggregate demand exceeds aggregate supply, leading to upward pressure on prices.
Factors like increased consumer spending, business investment, or government expenditure can contribute to demand-pull inflation.
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example of demand pull inflation?
Example: An economic boom that stimulates consumer spending and business investment may result in demand-pull inflation.
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Cost-Push Inflation?
Cost-push inflation arises when production costs increase, causing firms to raise prices to maintain profitability.
Factors like rising raw material prices, higher wages, or supply chain disruptions can lead to cost-push inflation.
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example of cost push inflation?
Example: A spike in oil prices can trigger cost-push inflation as it raises production costs for many goods and services.
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Growth of the Money Supply?
An increase in the money supply, not matched by a corresponding increase in economic output, can lead to excess demand for goods and services and result in inflation
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example of growth if the money supply?
Example: Central banks printing excessive amounts of money can contribute to inflationary pressures.
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F) Effects of Inflation on Economic Agents
1. Consumers
Inflation erodes the purchasing power of money, reducing the real value of savings.
Fixed-income earners may experience reduced real incomes.
People on fixed pensions may find it more challenging to maintain their standard of living.
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F) Effects of Inflation on Economic Agents;
2. firms
Firms may face rising production costs, reducing profit margins.
They may adjust prices upward to maintain profitability.
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F) Effects of Inflation on Economic Agents;
3. government
Inflation can increase the cost of servicing government debt, diverting resources from other public spending priorities.
Tax brackets may not be adjusted for inflation, resulting in "bracket creep" and higher tax burdens.
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F) Effects of Inflation on Economic Agents;
4. workers
While workers may see nominal wage increases, their real wages may decline due to inflation.
Labour unions may negotiate for higher wages to keep pace with rising prices.
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[2.1.3 - employment and unemployment]
a) Measures of Unemployment:?
- claimant count
-international labour organisation [ILO] and the UK labour force survey
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claimant count?
The claimant count is a measure of unemployment based on the number of people who are claiming unemployment-related benefits, such as Jobseeker's Allowance.
It provides a narrow definition of unemployment, as it only includes those actively seeking and receiving government benefits.
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International Labour Organisation (ILO) and the UK Labour Force Survey?
The ILO defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.
The UK Labour Force Survey is the primary source of unemployment data in the UK and follows the ILO definition.
It provides a broader and more comprehensive picture of unemployment, including those not eligible for benefits.
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what is unemployment?
Unemployment refers to individuals who are not currently employed but are actively seeking and available for work.
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what is under-employment?
Under-employment occurs when individuals are employed but their job does not fully utilize their skills and qualifications. This can result in part-time work, low wages, or jobs below their skill level.
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significance in changes to employment rate?
Measures the proportion of the working-age population in employment. A rising employment rate indicates economic growth.
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significance in changes to unemployment rate?
Measures the proportion of the labour force actively seeking work. A high unemployment rate indicates economic problems.
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significance of changes in inactivity rate?
Measures the proportion of the working-age population that is not in the labour force. It can indicate a lack of job opportunities or demographic factors.
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causes/types of unemployment?
-structural
-frictional
-seasonal
-demand deficient
-real wage inflexibility
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structural unemployment?
Occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs.
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frictional employment?
Temporary unemployment when individuals are between jobs or entering the workforce.
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seasonal unemployment?
Linked to seasonal variations in demand, e.g., tourism or agriculture.
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demand deficient unemployment?
Demand Deficiency (Cyclical) Unemployment: Arises from a lack of aggregate demand during economic downturns.
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real wage inflexibility?
When wages are too high, leading to job cuts or an unwillingness to hire.
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e) Significance of Migration and Skills for Employment and Unemployment?
Migration can impact employment by changing the supply of labour in specific regions. Immigrants may fill labour gaps, but this can also lead to wage pressures.
Skills are crucial for employment. A highly skilled workforce is more adaptable and less prone to unemployment in a changing economy
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f) Effects of Unemployment;
~consumers
~firms
Consumers: Reduced income can lead to lower consumer spending, impacting businesses.
Firms: High unemployment can lead to a larger labour pool, potentially reducing wage pressures.
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f) Effects of Unemployment;
workers
government
society
Workers: Lost income, reduced job prospects, and psychological stress.
Government: Increased spending on unemployment benefits and lost tax revenue, social issues.
Society: Social unrest, reduced well-being, and inequality.
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[2.1.4 - balance of payments]
what is the balance of payments?
The balance of payments (BoP) is a record of all economic transactions between a country and the rest of the world. It is divided into two main components: the current account and the capital and financial account.
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what is the current account? [1]
Balance of Trade in Goods: It measures the difference between the value of a country's exports and imports of tangible goods (e.g., machinery, cars, and clothing).
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what is the current account? [2]
Balance of Trade in Services: It accounts for the value of services traded internationally, such as tourism, financial services, and consulting
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what is the current account? [3]
Income Balance: This includes earnings from abroad (e.g., dividends, interest, and wages) and payments made to foreign investors. A surplus indicates that a country earns more from its foreign investments than it pays to foreign investors.
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what is the current account? [4]
Current Transfers: This category includes foreign aid, remittances sent by migrant workers, and other unilateral transfers. It can be positive (inflows) or negative (outflows).
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when does a A Current Account Deficit occur?
occurs when a country's imports of goods, services, income, and transfers exceed its exports in those categories. It implies that the country is spending more than it is earning from the rest of the world.
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when does a A Current Account Surplus occur?
occurs when a country's exports of goods, services, income, and transfers exceed its imports. It implies that the country is earning more than it is spending internationally.
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c) Relationship between Current Account Imbalances and Other Macroeconomic Objectives:
Impact on Exchange Rates?
A persistent current account deficit may lead to a depreciation of the country's currency, making exports more competitive and imports more expensive. This can help correct the deficit.
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c) Relationship between Current Account Imbalances and Other Macroeconomic Objectives:
impact on economic growth?
A surplus can lead to higher savings and investment, potentially boosting economic growth. However, a persistent deficit may lead to unsustainable borrowing.
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c) Relationship between Current Account Imbalances and Other Macroeconomic Objectives:
impact on employment?
A trade surplus may support job creation in export-oriented industries, while a deficit can lead to job losses in import-competing sectors.
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c) Relationship between Current Account Imbalances and Other Macroeconomic Objectives:
impact on inflation?
A depreciating currency (due to a deficit) can lead to imported inflation, affecting the domestic price level.
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d) Interconnectedness of Economies through International Trade:
what does international trade foster?
International trade fosters economic interdependence among countries. One country's economic policies and developments can have ripple effects globally.
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d) Interconnectedness of Economies through International Trade:
Supply chain integration?
Many products involve components from multiple countries. Disruptions in one country can disrupt global supply chains.
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d) Interconnectedness of Economies through International Trade:
benefits of trade?
Benefits of trade: International trade allows countries to specialize in producing what they are most efficient at, leading to efficiency gains and a higher standard of living.
