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Edexcel Economics A-level > 2.1 Measures of Economic Performance > Flashcards

2.1 Measures of Economic Performance Flashcards

2.1.1 Economic Growth, 2.1.2 Inflation, 2.1.3 Employment and unemployment, 2.1.4 Balance of payments (87 cards)

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1
Q

what is the definition of gross domestic product (GDP)

A

the value of all final G/S produced in an economy in a one-year period

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2
Q

what are the three ways to measure national output/GDP

A

expenditure method - C+I+G+(X-M)
income method - rewards for FOPs
output method - value G/S produced

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3
Q

what are the different types of GDP

A

nominal
real
per capita

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4
Q

what is nominal GDP

A

not adjusted for inflation

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5
Q

what is real GDP

A

adjusted for inflation

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6
Q

what is GDP per capita

A

per person ( / population)

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7
Q

what is gross national income (GNI)

A

the total income generated by a country’s FOPs regardless of where they are located
GDP + net factor income

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8
Q

what is purchasing power parity (PPP)

A

a conversion factor that can be applied to GDP, GNI and GNP that calculates the relative purchasing power of different countries (how much a basket of goods costs in different countries)

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9
Q

what are the limitations of using GDP as a measure of living standards

A

negative externalities not accounted for
income inequality
type of output produced (capital vs consumer)
other quality of life aspects (e.g. health, freedom) not accounted for

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10
Q

what are the limitations of using GDP as a measure of economic growth

A

risk of double counting (in primary and secondary sector)
informal activity (DIY, volunteering, black markets)
errors given vast amount of data collection

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11
Q

what are the limitations with using GDP for comparing living standards between countries

A

lack of inequality information
quality of G/S not included
does not include informal activity
double counting may occur
negative externalities not included
influence of FDI and repatriation profit
factor income earned abroad

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12
Q

what is the human development index (HDI)

A

income - GDP per capita at PPP
health - life expectancy
education - mean years at school

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13
Q

how does the scale of the HDI work

A

the closer to 1, the higher the level of economic development and standard of living

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14
Q

what does the Easterlin paradox describe

A

happiness and increases in income have a direct relationship to a point, but beyond that point the relationship is less evident

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15
Q

what is the definition of inflation

A

an increase in the general level of prices - the average price of all G/S increases. implies that the value of money falls since more money is now needed to buy the same things

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16
Q

what is the definition of disinflation

A

when the rate of inflation falls, but does not become negative. prices are still rising but at a slower rate

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17
Q

what is the definition of deflation

A

when the rate of inflation becomes negative. the average price levels fall, and the value of money increases

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18
Q

what is accelerating inflation

A

where the rate of inflation increases

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19
Q

what is hyper-inflation

A

where the rate of inflation becomes so high that it leads to the break-down of the currency

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20
Q

what is the consumer prices index (CPI)

A

the measure of inflation targeted by the BofE. used as a benchmark that any index-linked payments are increased off of. does not include housing costs

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21
Q

what are the limitations of using the CPI

A

gives inflation for the ONS’ average basket, which may not be reflective for everyone
it is one of several methods used to measure inflation, as well as RPI and others
does not capture quality of products
only measured on an annual basis
prone to errors in data collection

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22
Q

what is the retail prices index (RPI)

A

a measure of inflation that does not include housing costs, council tax, mortgage interest payments, house depreciation and other house purchasing fees

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23
Q

what does the ONS use to determine an accurate measurement of inflation

A

the basket of goods

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24
Q

how does the ONS calculate the CPI inflation rate

A

conducts a monthly survey on what people buy and the % of income they spend on it
put a higher weight on G/S people spend a higher % of income on
finds price changes as a % of all G/S and compares between two time periods to calculate inflation rate

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25
what are the main causes of inflation
demand-pull cost-push
26
what causes cost-push inflation
rising costs of factors of production producers pass on higher costs to consumers AS curve shifts to the left
27
how does cost-push inflation manifest itself
rise in wages (without rise in productivity) rise in the cost of imported raw materials rise in indirect taxes
28
what does cost-push inflation look like on a diagram
left shift of (SR)AS curve
29
what policies can be used to address cost-push inflation
restrictions in wage increases (especially public sector) reduction in corporation tax subsidies + other supply side policies
30
what causes demand-pull inflation
excessive growth in AD compared to AS shifts AD curve to the right allows sellers to raise prices
31
how does demand-pull inflation manifest itself
high consumer spending or high demand for exports money supply growing faster than output bottleneck shortages since supply can't meet demand
32
what does demand-pull inflation look like on a diagram
right shift of AD curve
33
what fiscal policies can be used to address demand-pull inflation
reducing government spending on public goods or welfare raise direct taxes to reduce disposable income
34
what monetary policies can be used to address demand-pull inflation
higher interest rates to reduce C and I higher interest rates also cause exchange rate to appreciate, which decreases (X-M) and thus AD
35
what are the negative effects of inflation on consumers
decrease in purchasing power (especially for those on low/fixed incomes) decrease in the real value of savings 'shoe leather' costs - finding up-to-date price information
36
what are the negative effects of inflation on firms
uncertainty due to rapid price changes 'menu change' costs - forces firms to change their prices
37
what are the negative effects of inflation on the government
erodes international competitiveness of exports trade-offs in tackling inflation (e.g. unemployment or reduced economic growth)
38
what are the negative effects of inflation on workers
wage price spirals - inflationary pay rises give illusion of real pay rise, increase in AD, more inflation etc. wage increases less than inflation can reduce motivation fiscal drag - inflationary pay rises can move workers to higher tax brackets
39
what are the positive effects of inflation on consumers
increase the real value of borrowing (money to be paid back is worth more in real terms)
40
what are the positive effects of inflation on firms
increase in output in line with increased demand
41
what are the positive effects of inflation on the government
keeps unemployment low in a recession with higher levels of AD can improve government finances with fiscal drag
42
what are the positive effects of inflation on workers
can get higher wages since it is easier to negotiate a pay rise
43
what is the evaluation of the effects of inflation
rate of inflation causes of inflation duration anticipated vs unanticipated rate of change / stability of prices
44
what are the limitations of using GDP/capita as a measure of living standards
same issues as with GDP + factor income earned abroad & remittances sent home from abroad influence of FDI & repatriation profit distorts figure
45
what is green GDP
GDP minus environmental costs of production
46
what are the limitations of green GDP
putting monetary value on environmental costs is very difficult GDP could fall dramatically (politically sensitive)
47
what does it mean to be unemployed
those of a working age who are willing and able to to work, and actively seeking work but do not have a job
48
what is the main way of measuring unemployment
labour force survey (LFS)
49
how does the LFS measure unemployment
a national survey that calculates the percentage of unemployed people in the economy (unemployed / economically active x100)
50
what is the other method of measuring unemployment
claimant count
51
how does the claimant count measure unemployment
the total number of people receiving unemployment benefits
52
why is the claimant count not used universally
difficult to compare between countries (availability of unemployment benefits) not everyone will claim not everyone can claim could be subject to fraud
53
what are the issues with the LFS
small sample size (very large margin of error) very expensive to run discouraged workers (hidden unemployed) not counted inactive groups not counted under-employed not taken into account disparities not accounted for
54
what does it mean to be under-employed
workers who are employed, but are not employed for as much work as they want (e.g. part-time worker wanting full-time work)
55
who are discouraged workers
people who were looking for work, but got rejected, and become discouraged from looking for work, eventually dropping out the labour force
56
what are the types of disequilibrium unemployment
cyclical unemployment (demand deficient) real wage unemployment (classical)
57
what is cyclical unemployment
unemployment in a recession due to a lack of AD
58
what is real wage unemployment
when wages are forced above equilibrium in a labour market, creating an XSS of labour
59
what are the causes of cyclical unemployment
labour is a derived demand reduced size of labour force to maintain firms' profit margins
60
what are the causes of real wage unemployment
minimum wages trade unions inflating wages
61
what are the types of equilibrium unemployment
structural unemployment frictional unemployment seasonal unemployment
62
what is frictional unemployment
when workers are in between jobs, looking for new jobs
63
what is seasonal unemployment
a temporary fall in demand for workers due to a seasonal change
64
what is structural unemployment
the immobility of labour due to a long term change in the structure of an industry
65
what are the two types of structural unemployment
occupational immobility of labour geographical immobility of labour
66
what is occupational immobility of labour
a mismatch between skills workers have and job vacancies that exist
67
what is geographical immobility of labour
workers are not wiling or able to physically move to where job vacancies exist
68
what are the main examples of causes of structural unemployment
technology advancement which reduces the need for physical labour loss of comparative advantage for an industry modernisation/new industry growth (education)
69
what is the natural rate of unemployment (NRU)
unemployment when the labour market is in equilibrium consists of structural, frictional and seasonal unemployment
70
what are the market based determinants of the natural rate of unemployment
benefits system too generous excessive labour market regulation (hiring/firing)
71
what are the interventionist determinants of the natural rate of unemployment
market failures: lack of transport/housing infrastructure lack of in-work training
72
what are the costs of unemployment
lost output deterioration of government finances social costs costs to other countries lost income hysteresis
73
what is hysteresis
when unemployment becomes long-term de-skilling 'the unemployed become unemployable'
74
what are the benefits of unemployment
greater pool of workers for firms to choose from lower inflation improved current account position more time for workers to find a suitable job
75
what is the evaluation for unemployment (depends on)
rate - as close to NRU as possible (unless NRU is too high) duration (long term is worst) type (structural is worst) distribution (youth u/e is worst)
76
what is the balance of payments
a measure of the inflows and outflows of money in/out a country (international transactions)
77
what is the macroeconomic objective with the balance of payments
to be as close to equilibrium as possible
78
what are the components of the balance of payments
current account capital account financial account
79
what are the four sections of the balance of payments current account (BoPCA)
trade in goods (X-M) trade in services (X-M) net income current transfers
80
what is being measured in the BoPCA
value
81
what are the demand side causes of a current account deficit
strong domestic growth recession overseas strong exchange rate (SPICED)
82
what are the supply side causes of a current account deficit
low investment (lack of competitiveness) low productivity (lack of competitiveness) high relative inflation (lack of competitiveness) high unit labour costs (lack of competitiveness) poor quality of G/S (lack of competitiveness) depletion of resources
83
what are the consequences of a current account deficit
lower AD, since (X-M) is negative -> decreased growth, increased unemployment increased debt burdens -> decreased borrowing confidence -> currency crisis -> economic crisis decreased exchange rate -> increased supply of currency -> could partially fix deficit (WPIDEC) -> BUT could just lead to stagflation since more expensive imports but no more demand for exports
84
what are the demand side causes of a current account (trade) surplus
high incomes abroad (+X) low incomes at home (-M) weak exchange rate (WPIDEC)
85
what are the supply side causes of a current account (trade) surplus
low relative inflation low unit labour costs (high productivity, weak TUs, low min wage) strong investment gains in comparative advantage new resource discoveries
86
what are the consequences with a current account (trade) surplus
+ (X-M), + AD, + growth, - u/e, + demand-pull inflation appreciation of exchange rate (-> SPICED) financial account deficit (if bad international bonds are purchased) can harm international relations (trade wars) sign of an unbalanced economy (too many exports)
87
what is the current account balance of payments (BoPCA)
total value of exports minus total value of imports in one year

Edexcel Economics A-level (12 decks)

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