2.1 - Measures of economics performance

Question 2

economic growth

Answer 2

rise in value of GDP (output)

Question 3

real GDP

Answer 3

value of GDP adjusted to inflation

Question 4

nominal GDP

Answer 4

value of GDP at current prices (not adjusted for inflation)

Question 5

total GDP

Answer 5

total value of all goods/services produced within a country’s border during time period

Question 6

GDP per capita

Answer 6

GDP divided by population (per person/head)

Question 7

volume of GDP

Answer 7

size of basket of goods and real level of GDP

Question 8

Value of GDP

Answer 8

monetary value of GDP at prices of the day. Volume x current price level

Question 9

ways to measure national income

Answer 9

gross national income

Question 10

GNI (gross national income)

Answer 10

sum of value added by all producers who reside (live in) in a nation, plus overseas interest payments and dividends.

Question 11

purchasing power parity

Answer 11

theory that estimates how much exchange rate needs adjusting so that exchange between countries is equivalent.

Question 12

limitation of GDP to compare living standards

Answer 12

• doesn’t give indication of distribution
• GDP may need to be recalculated in terms of purchasing power
• doesn’t include hidden markets eg. black market
• GDP has no indication of welfare

Question 13

inflation

Answer 13

sustained in increase in general price level overtime

Question 14

deflation

Answer 14

where average price level in the economy falls, negative inflation rate.

Question 15

disinflation

Answer 15

reduction in rate of inflation (speed)

Question 16

how inflation is calculated

Answer 16

CPI - consumer price index

Question 17

CPI

Answer 17

1. survey
2. weighted basket of goods
3. measures average price change of goods
4. updated annually

Question 18

limitations of CPI

Answer 18

• average basket (doesn’t apply to all households)
• ignores regional differences
• does not consider quality of products
• error in data collection (respondents have no incentive to fill in survey accurately)

Question 19

RPI - Retail price index

Answer 19

includes house costing, mortgages, excludes top 4% of earners and low income pensioners

otherwise SAME as CPI

Question 20

causes of inflation

Answer 20

• demand pull
• cost push

Question 21

demand pull inflation

Answer 21

caused by excess demand in the economy

demand increases (shifts)

Question 22

cost push inflation

Answer 22

caused by increase in costs of production in economy

SRAS shifts inwards, left

Question 23

hyperinflation

Answer 23

rise in prices is rapid (inflation rate is fast)

Question 24

effects of inflation on consumers

Answer 24

• decrease in purchasing power
• decrease in real value of savings
• fall in real income for those on fixed income/pension

Question 25

effects of inflation on firms

Answer 25

- rapid price change creates uncertainty / delays investment - menu change costs (expensive) - if UK inflation is higher than other countries, British goods will be more expensive = less competitive = difficult to export

Question 26

effects of inflation on government

Answer 26

- inflation erodes international competitiveness (less exports) - trade-offs (eg. reducing inflation may increase unemployment and/or reduce economic growth

Question 27

effects of inflation on workers

Answer 27

- demand higher wages to compensate for reduced PP - wage increase = increase in inflation