Section Four - Measuring Economic Performace Flashcards
What is GDP?
Gross domestic product - it is a measure of economic growth
Limitations of GDP and GDP per capita?
Inequality - Two countries may have similar GDP per capita, but the income differences can be huge.
Public spending - some governments spend more money on providing benefits than others.
Other factors - such as hours per week worked, and different spending needs.
Hidden economy - economic activity that doesn’t appear in official figures.
What the difference between Nominal and real GDP?
Nominal GDP hasn’t been adjusted for inflation - Real GDP has.
Four types of macroeconomic indicators
1) Rate of economic Growth
2) Rate of Inflation
3) Rate of unemployment
4) State of the balance of payments
What is inflation?
Inflation is the sustained rise in the average price of goods and services over a period of time.
What is RPI’s first survey?
The Living costs and Food Survey (6000 households, finds what money’s spent on, weights them depending on % of income spent on them.
What is a ‘Basket of Goods’?
Based on price - measures the change in price of around 700 of the most common goods and services. Items are chosen based on the Living costs and food survey - basket changes over time due to technology, taste etc. Price changes of Second survey x weighting of first survey = inflation
What is Consumer Price index? (CPI)
Fairly similar to RPI except the formula is slightly different, it’s surveys a larger sample, and some items are excluded - such as Council tax and mortgage interest payments
Limitations of CPI and RPI?
RPI excludes all households in top 4% of payments - CPI excludes council tax and mortgage rates.
Basket of goods only changes once a year - may miss some short - term changes in spending habits
Livings costs and food survey can be innacurate.
