2.1. Measures of Economic Performance Flashcards
(45 cards)
What is economic growth?
The rate of change of output, or an increase in the long term productive potential of a country.
How is economic growth typically measured?
By the percentage change in real GDP per annum.
What is Gross Domestic Product (GDP)?
The total value of goods and services produced in a country within a year.
What is the difference between total GDP and GDP per capita?
Total GDP is the overall GDP for the country, while GDP per capita is the total GDP divided by the number of people in a country.
What is the difference between real and nominal GDP?
Real GDP strips out the effects of inflation, while nominal GDP does not.
Explain the difference between the ‘value’ and ‘volume’ of national income.
The value is the monetary cost of a basket of goods, while the volume is the national income adjusted for inflation.
What is Gross National Income (GNI)?
The value of goods and services produced by a country, plus net overseas interest payments and dividends.
What is Gross National Product (GNP)?
The value of goods and services produced by citizens of a country, both domestically and overseas.
What are Purchasing Power Parities (PPP)?
An exchange rate that compares the cost of a typical basket of goods in different countries.
Give examples of a problem using GDP to compare standard of living.
-GDP doesn’t account for the ‘hidden’ or ‘black’ market.
-GDP doesn’t account for home-produced services.
-GDP doesn’t account for inequalities.
-GDP doesn’t account for quality of goods and services.
-GDP doesn’t account for spending.
Name some factors affecting national well-being besides GDP.
Health, life expectancy, having someone to count on, freedom, freedom from corruption, and generosity.
What are the four key questions asked in the UK Measuring National Wellbeing report?
Life satisfaction, anxiety, happiness, and worthwhileness.
What is the Easterlin Paradox?
Happiness and income are positively related at low incomes, but higher levels of income aren’t associated with increases in happiness.
What is inflation?
The general increase of prices in the economy.
What is deflation?
The fall of prices in the economy.
What is disinflation?
A reduction in the rate of inflation.
What is the Consumer Price Index (CPI)?
An overall price index based on the average household spending pattern.
Give a limitation of the CPI.
-It is impossible for the figure to take into account every single good that is sold in the country.
-Different households spend different amounts on each good.
-It does not include the price of housing.
-It is difficult to make comparisons with historical data.
How does the Retail Price Index (RPI) differ from the CPI?
RPI includes housing costs and excludes the top 4% of income earners and low income pensioners.
What is demand-pull inflation?
Inflation caused by an increase in aggregate demand (AD).
What is cost-push inflation?
Inflation caused by a decrease in aggregate supply (AS).
How can growth of the money supply cause inflation?
If people have access to money and there is no increase in goods/services, prices will rise.
How does inflation affect consumers?
It reduces purchasing power if incomes don’t rise with inflation.
How does inflation affect firms?
It can make British goods less competitive if inflation is higher than in other countries.
