2.1 Measures of Economic Performance Flashcards
(40 cards)
What occurs when there is a rise in the value of Gross Domestic Product (GDP)?
Economic growth
Economic growth indicates an increase in national output, leading to higher living standards and more employment opportunities.
What is Real GDP?
The value of GDP adjusted for inflation
Real GDP reflects the true growth of an economy by accounting for the effects of inflation.
What does Nominal GDP represent?
The value of GDP without being adjusted for inflation
Nominal GDP can be misleading as it does not reflect the real value of goods and services produced.
What is GDP per capita?
The value of total GDP divided by the population of the country
It measures the average output per person and is useful for comparing the relative performance of countries.
Define Gross National Product (GNP).
GNP is the total market value of all final goods and services produced in a year by the residents of a country, including income earned abroad and excluding income earned domestically by foreign residents.
GNP includes income earned from overseas assets minus income earned by overseas residents.
What is Purchasing Power Parity (PPP)?
A theory that estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent based on purchasing power
PPP helps minimize misleading comparisons between countries.
What is a limitation of using GDP to compare living standards?
GDP does not indicate income distribution
Two countries with similar GDPs per capita may have different distributions, leading to different living standards.
What are the six factors affecting national well-being according to the UN happiness report?
- Real GDP per capita
- Health
- Life-expectancy
- Having someone to count on
- Perceived freedom to make life choices
- Freedom from corruption and generosity
These factors provide a broader understanding of national well-being beyond economic metrics.
What is inflation?
The sustained rise in the general price level over time
Inflation leads to an increase in the cost of living and a decrease in purchasing power.
What is the Consumer Prices Index (CPI)?
A measure of household purchasing power using a weighted basket of goods
CPI is updated annually to reflect changes in spending patterns and is used to calculate the inflation rate.
What does the Retail Price Index (RPI) include that CPI does not?
Housing costs, such as mortgage interest payments and council tax
This often results in RPI having a higher value than CPI.
What is demand-pull inflation?
Inflation that occurs when aggregate demand grows unsustainably, leading to increased prices
Common triggers include depreciation of the exchange rate and fiscal stimulus.
What is cost-push inflation?
Inflation that occurs when firms face rising costs of production
This can be triggered by higher raw material costs, increased labor costs, or expectations of future inflation.
How does inflation affect consumers? (3)
- Reduces purchasing power
- Hits low and fixed income individuals hardest
- Can decrease real value of debt
Inflation disproportionately affects those with limited incomes.
What are the two main measures of unemployment in the UK?
- Claimant Count
- International Labour Organisation (ILO) and Labour Force Survey (LFS)
Each measure has its strengths and weaknesses in capturing the true unemployment rate.
What is the difference between unemployment and underemployment?
Unemployment refers to those actively seeking work, while underemployment refers to individuals who are employed but not fully utilizing their skills
Underemployment can occur in part-time jobs where individuals seek full-time work.
What is structural unemployment?
Unemployment resulting from a long-term decline in demand for certain industries
This can be exacerbated by geographical and occupational immobility of labor.
What are the potential societal effects of high unemployment? (3)
- Decreased consumer spending
- Increased government spending on welfare
- Possible rise in crime and vandalism
High unemployment can have widespread negative consequences beyond individual hardship.
What is unemployment in macroeconomics?
Unemployment is the condition where individuals who are willing and able to work at the current wage rate are unable to find jobs.
What is structural unemployment?
Unemployment caused by a long-term decline in demand for goods and services in an industry, leading to job losses.
Which industries in the UK have experienced structural unemployment?
- Car manufacturing
- Coal
- Ship building
What worsens structural unemployment?
Geographical and occupational immobility of labour.
How does globalization contribute to structural unemployment?
Globalization can cause job losses as production moves to cheaper countries. Retraining is often needed due to mismatched skills.
What role does technological change play in structural unemployment?
Tech change causes job losses via automation, requiring retraining.
