economic measures definitions

Question 1

economic growth

Answer 1

short run - increase in real GDP
long run - increase in productive capacity

Question 2

real GDP

Answer 2

countrys output produced in constant prices and so adjusted for inflation

Question 3

GDP

Answer 3

gross domestic product

value of all goods and services produced in a country in a year, can be measured by adding up all of economy’s income, expenditure and output

Question 4

quarter

Answer 4

3 month period

Question 5

GDP is negative

Answer 5

economy is contracting

Question 6

two consecutive quarters of contraction =

Answer 6

economy Is in recession

Question 7

informal economy

Answer 7

transaction not recorded
eg illegal activity - ‘cash in hand’ jobs

Question 8

price index

Answer 8

100 x nominal GDP/real GDP

Question 9

Nominal GDP

Answer 9

calculated first but actual figure can be distorted by inflation figures before announced adjusted by change in price levels

Question 10

gross national income

Answer 10

total domestic and foreign output claimed by residents of a country. different to GDP, all income paid into the country

(GDP + INCOME)

Question 11

purchasing power parity

Answer 11

exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to another

Question 12

Purchasing Power Parity (PPP)

Answer 12

This is an additional exchange rate adjustment that equalises the price of internationally traded goods across countries.

Question 13

Arbitrage

Answer 13

If, at a certain exchange rate, it is cheaper to buy goods in one country than another, businesses will buy goods in the cheaper country and sell in the other for a profit.

Question 14

National income

Answer 14

National income is used to assess changes in living standards in a country, and between countries, over time. But it is not a perfect measure.

Question 15

disinflation

Answer 15

fall in the rate of inflation- prices are still rising but more slowly than before

Question 16

consumer prices index

Answer 16

measure of price level used across the EU and used by the Bank of England to measure inflation against its target

Question 17

retail prices index

Answer 17

measure of price level used in a variety of contexts, such as gov to index welfare benefits

Question 18

RPI calculated

Answer 18

same way as CPI
+ mortgage interest repayments
+council tax

Question 19

Demand-pull inflation

Answer 19

Demand-pull inflation is caused by increases in aggregate demand outstripping aggregate supply. The economy is close to full employment, and increases in AD lead to the general price level rising because supply cannot keep up with increased demand.

Question 20

Exchange rate depreciation

Answer 20

– causes the price of exports to be cheaper in foreign currency terms and thus demand for exports rises.

Question 21

menu costs

Answer 21

costs firms face of keeping prices updated in shops

Question 22

‘hysteresis’.

Answer 22

when workers are unemployed for a time period, they become deskilled and demotivated and are less able to get new jobs - this is known as ‘hysteresis’.

Question 23

The Claimant Count (CC)

Answer 23

The Claimant Count (CC) is defined as a person who is receiving the Job Seekers’ Allowance.

Question 24

International Labour Organisation (ILO)

Answer 24

ILO measure defines unemployment as someone who has been actively seeking work for the past four weeks but ready and able to start in the next two weeks. This is collected in the UK by the Labour Force Survey.

Question 25

Demand-side in the labour market refers to the demand for labour from firms. demand side factors=

Answer 25

Demand-side factors affecting employment and unemployment include: Health of firms, e.g. profit levels, demand for goods. Confidence of firms. Overall strength of economy. Government intervention to encourage hiring. Level of labour market regulation/costs of hiring.

Question 26

Supply-side in the labour market refers to the supply of labour by workers. Supply-side factors

Answer 26

Supply-side factors affecting employment and unemployment include: Labour market flexibility, e.g. trade union strength. Skills of workers. Geographic mobility of workers. Occupational mobility of workers.

Question 27

Hysteresis

Answer 27

Hysteresis is a general term that means the history of a system affects the future of the system. In unemployment, hysteresis would mean that a history of being unemployed in the past may make a worker more likely to be unemployed in the future.

Question 28

The insider-outsider effect

Answer 28

A fall in AD reduces output and employment as some people lose their jobs. The insiders who keep their jobs have strong bargaining power inside their firms. Their firm-specific skills and bargaining power mean that they claim wage rises, rather than hiring more 'outsiders'

Question 29

Current account

Answer 29

Current account The current account is comprised of: Trade in goods and services (X-M). Net primary income - net factor income from abroad (e.g. remittances, profits, interest on dividends). Net secondary income - net unilateral transfers

Question 30

financial account

Answer 30

The financial account is comprised of: Net foreign ownership of domestic assets. Hot money flows.

Question 31

Capital account

Answer 31

The capital account is comprised of: Sale/transfer of patents, copyrights, franchises, leases and other transferable contracts, and goodwill. Transfers of ownership of fixed assets.

Question 32

Unilateral transfers

Answer 32

Unilateral transfers are payments by governments or individuals in which money is sent abroad without any direct good or service being received

Question 33

International trade

Answer 33

nternational trade allows current account surpluses and deficits to develop.

Question 34

A current account deficit

Answer 34

A current account deficit may show that a nation is importing lots of goods and services. However, if labour and input costs are cheaper overseas, this may reduce inflationary pressure.

Question 35

A current account surplus

Answer 35

can mean that an economy is exporting a lot of goods.

Question 36

demand-pull inflation

Answer 36

increases in price level caused by increases In aggregate demand

Question 37

cost-push inflation

Answer 37

increases in price level caused by increases in costs of production

Question 38

quantitive easing

Answer 38

growth of money supply , effect of making more money available for consumers/firms to borrow/spend/invest increases aggregate demand and causes demand pull inflation

Question 39

inflationary noise

Answer 39

distortion of price signals caused by inflation economic agents unsure if price rise is due to inflation or rise In product price

Question 40

unemployment

Answer 40

occurs when Individuals are without a job but actively seeking work

Question 41

unemployment rate

Answer 41

percentage of labour force who are out of work ( unemployed/labour force ) x 100

Question 42

labour force

Answer 42

those in work or actively seeking work ; also known as the active population

Question 43

economically inactive

Answer 43

people of working age who are neither employed nor unemployed

Question 44

labour force survey

Answer 44

measure of unemployment based on survey using ILO definition of unemployment

Question 45

International labour organisation

Answer 45

member organisation of the UN that collects statistics on labour market conditions and seeks to improve working conditions

Question 46

claimant count

Answer 46

measure of unemployment includes those receiving employment related benefits known as job seekers alliance

Question 47

underemployment

Answer 47

situation- workers working less hours than they want to or are in jobs below their skill level

Question 48

Balance of payments

Answer 48

record of all financial dealings over a period of time between economic agents of one country and all other countries

Question 49

current account

Answer 49

part of balance of payments account where payments for purchase and sale of goods and services are recorded

Question 50

current account surplus

Answer 50

surplus exists when value of exports are greater than imports

Question 51

current account deficit

Answer 51

deficit exists when value of imports are greater than exports

Question 52

gov objective of balance of payments

Answer 52

promote UK exports in manafacturing and service sectors in order to balance imports and exports

Question 53

got target of balance of payments

Answer 53

to achieve situation where money entering the economy (exports) is equal to money leaving (imports)

Question 54

3 main elements of balance of payments

Answer 54

current account capital account financial account

Question 55

current account : trade in goods

Answer 55

AKA visibles - trade in raw materials, semi-finished goods and finished goods UK = developed economy so has large deficit on trade in goods

Question 56

current account : trade in services

Answer 56

AKA invisibles, include insurance and banking and spending related to tourism such as hotels and restaurants UK has a large surplus on trade in services

Question 57

current account : primary income

Answer 57

results from loan of factors of production abroad such as profits from UK companies with outlets abroad can be 'remittances' swell of which the UK has a deficit

Question 58

current account : secondary income

Answer 58

payments given and received by the government from agencies such as the IMF and the World Bank

Question 59

quantitative easing

Answer 59

growth of money supply - makes money more available for consumers and firms to borrow/spend or invest-increase aggregate demand cause demand-pull inflation

Question 60

Animal spirits

Answer 60

level of confidence of business owners

Question 61

boom

Answer 61

peak of business cycle when growth is high

Question 62

budget deficit

Answer 62

gov spends more than it receives

Question 63

injection

Answer 63

spending power entering the circular flow of income

Question 64

LRAS

Answer 64

total output economy can produce when operating at full output

Question 65

marginal propensity to consume

Answer 65

proportion of increase in income spent on consumption

Question 66

fiscal drag

Answer 66

peoples incomes being dragged into higher tax brackets that aren't adjusted in line with inflation

Question 67

structural

Answer 67

occurs when the labor market is unable to provide jobs to all individuals who are seeking employment due to a mismatch between the skills or qualifications of job seekers and the available job opportunities

Question 68

frictional

Answer 68

type of short-term, voluntary unemployment that occurs when people are between jobs or entering the workforce for the first time.

Question 69

seasonal

Answer 69

when people are temporarily out of work due to the seasonal nature of certain industries or jobs.

Question 70

demand deficiency

Answer 70

when there's not enough overall demand for goods and services in the economy to keep everyone employed.

Question 71

cyclical

Answer 71

unemployment that is caused by fluctuations in the business cycle or economic cycle.

Question 72

real wage inflexibility

Answer 72

a situation where wages, adjusted for inflation (real wages), are too high to allow the labor market to reach equilibrium, leading to potential unemployment.