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Measures of Economic Performance

Sophie Knight Economics A level Inglés 29 fichas

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1Why is GDP on its own not very useful?1. Don't know how many people are in the country
2. Don't know what the currency is worth in terms of spending power
3. Don't know the changes since the last measure
2What is the difference between actual economic growth and potential economic growth?Actual economic growth is an increase in real incomes or GDP
Potential economic growth is an increase in the productive capacity
3What exactly is GDPThe sum of all goods and services produced in a country in a year.
Also the sum of all incomes and all expenditure
4If Economic growth is to be measured using income rises, what values must be used?Real incomes rather than nominal incomes as it means that inflation will be accounted for
5What it GNP?Gross national product
total market value of all goods and services produced by domestic residents as well as income residents receive from abroad minus income claimed by non-residents
6What is GNI?Gross national income
Augmented version of GDP as it includes income paid into the country by other countries interest and dividends
7What 5 things does the evaluation of growth figures depend on?1. How well off the country was in the first place
2. How much output is self-consumed
3. Method of calculation and reliability of data
4. Relative exchange rates
5. How the government spends
8What are purchasing power parities?When values are expressed in accordance with the amount that the currency will buy in the local economy
9What are the 6 limitations of using GDP to compare living standards between countries?1. Subsistence, barter and hidden economies
2. Currency values
3. Income distribution
4. Size of public sector
5. Consumer and capital spending
6. Quality issues
10What is the easterlin paradox?The idea that peoples happiness increases with their incomes but only up to a certain point
11What are the 2 surveys needed to calculate inflation using the CPI?1. Survey of 7,000 households on what they buy to weight products
2. Survey of prices of the 650 most common goods
12What are 6 limitations of using the CPI to measure inflation?1. Doesn't include housing costs such as mortgage repayments
2. Only for average households
3. Sampling problems
4. The list of 650 is only changed once a year
5. Quality of goods could change
13What is the RPI?Retail price index
Includes housing costs and is unique to the UK so cannot compare countries
Also as interest rates rise, mortgage repayments will rise making it look inflationary which is the opposite of what happens
14What causes demand pull inflation?Increased...
consumption
investment
government spending
net exports
15Give 3 examples of things that cause cost-push inflationRise in wages
Fall in the exchange rate
Higher corporation taxes
16Name 3 effects of inflation for consumers1. The real value of savings falls
2. Purchasing power for those on fixed incomes decreases
3. Those with high levels of debt benefit from inflation as the real value of debt falls
17Name 5 effects of inflation for firms1. Loss of international competitiveness
2. Increased uncertainty
3. Foreign investment decreases
4. Increased prices could mean more profit
5. Real wages of workers can be changed without cutting them in nominal terms
18What are the 3 effects of inflation on the government?1. Redistribution of income
2. Cost of borrowing falls
3. Provides a cushion against the perils of deflation
19What are the 2 main effects of inflation on workers?1. Inflation may mean that they expect higher wages but firms may not provide them
2. Trade off between inflation and unemployment (phillips curve)
20What are the 2 main measures of unemployment?1. Claimant count
2. labour force survey (ILO)
21What is underemployment?When someone is employed but is working less hours than they'd like or even that they are working in a job way below what they are qualified to do
22What are 5 of the factors effecting employment?1. The school leaving age
2. Higher education numbers
3. Level of net migration
4. Availability of jobs
5. Level of taxes and benefits
23What are the 5 types of unemployment?1. Real Wage
2. cyclical
3. Structural
4. Frictional
5. Seasonal
24What are 5 reasons for cyclical unemployment?1. Lack of business confidence
2. Increase in value of a currency
3. slow rates of productivity growth compared to other countries
4. external shocks such as oil price rises
5. Increased use of imports from low wage countries
25What could be used to reduce cyclical unemployment?Fiscal or monetary stimulus
26What are the 5 effects of unemployment?1. People will have lower incomes an living standards will fall
2. Firms have to lower prices and make less profit
3. Workers skills become outdated
4. Government has to pay more JSA
5. Unemployed resources represent an opportunity cost
27What is the balance of payments?A record of payments between one country and the rest of the world and it comprises of the current, financial and capital accounts
28What is investment income?Measure of interest, profit and dividends that are rewards for capital investments in another country
29What happens to the current account balance of payments when there is a rise in interest rates?The exchange rate is likely to rise making exports expensive and imports cheap which results in a worse current account