2.1 Measures of Economic performance

what does GDP stand for?

Gross domestic product

What is GDP?

The value of all goods and services produced domestically in an economy in a one-year period.

Define nominal GDP

Nominal GDP is the actual value of all goods and services produced domestically in an economy in a one-year period, without adjustment for inflation.

What is Real GDP?

Real GDP is the value of all goods and services produced domestically in an economy in a one-year period, adjusted for inflation

What is GDP per capita?

GDP per capita is total GDP divided by the population of an economy. It is a measure of the mean wealth of each citizen in a country.

What is Gross national income (GNI)?

GNI is GDP plus the income earned by citizens operating outside of the country.

What is Gross national product (GNP)

GNP is GDP plus income from abroad minus income sent by non-residents to their home countries.

What are Purchasing power parities (PPP)

Purchasing power parities are exchange rate conversion factors that calculate the relative purchasing power or cost of living of different currencies

True or false?

GDP provides information on income inequality.

False

GDP does not provide information on income inequality within a country.

What is a limitation of using GDP for comparisons?

A limitation of using GDP for comparisons is that it does not include unpaid or voluntary work.

How does GDP relate to environmental factors?

GDP does not capture the environmental and health impacts (externalities) of generating income within a country.

What is the Easterlin paradox?

The Easterlin paradox is the concept that happiness and rises in income have a direct relationship but only up to a point, beyond which the relationship is less evident.It suggests that after reaching a certain income level, further increases do not correlate with higher happiness.

Which approach to measuring GDP adds up all expenditure in the economy?

The expenditure approach to measuring GDP adds up all expenditure in the economy.

What is inflation?

Inflation is the sustained increase in the average price level of goods and services in an economy.

Define Deflation

Deflation is the fall in the average price level of goods and services in an economy

What is Disinflation?

Disinflation is when the average price level is rising, but at a lower rate than previously.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a measure of the average price level of goods and services in an economy.

How is the inflation rate calculated?

The inflation rate is calculated using an index with 100 as the base year.

What is demand pull inflation?

Demand pull inflation is caused by excess aggregate demand over aggregate supply in the economy.

Define cost push inflation

Cost push inflation is caused by increases in the costs of production in an economy.

What is the wage-price spiral?

The wage-price spiral is when increased wages lead to higher prices, which in turn lead to demands for higher wages.

True or false?

The CPI captures regional differences in inflation

False

The CPI does not capture regional differences in inflation.

What is a limitation of using the CPI?

A limitation of using the CPI is that it does not capture the quality of the products in the basket

How does inflation affect firms?

Inflation affects firms by creating uncertainty and causing price list/menu change costs.

Which price index typically shows higher inflation, CPI or RPI?

The Retail Price Index (RPI) typically shows higher inflation than the Consumer Price Index (CPI)

What is unemployment?

Unemployment is when someone is not working but actively seeking work.

Define the labour force

The labour force consists of all workers actively working and the unemployed who are seeking work.

What is underemployment?

Underemployment is when people want to work more hours than they currently work or are working in jobs requiring lower skills than they have

How is the unemployment rate calculated?

calculated by taking the number of people actively seeking work divided by the total labour force, multiplied by 100.

What is the employment rate?

The employment rate is the percentage of the working-age population in employment

Define structural unemployment

where there is a mismatch between the jobs available and the skills or qualifications of those actively seeking work in the economy

What is cyclical unemployment

Cyclical unemployment is that caused by a fall in aggregate demand in an economy

What is seasonal unemployment?

Seasonal unemployment occurs at particular times of the year when demand for labour is lower than at peak times. For example, fruit-pickers are typically employed in the summer months.

What is frictional unemployment?

Frictional unemployment occurs when workers are temporarily between jobs as they transition from one job to another

Define real wage unemployment

Real wage unemployment occurs when wages are inflexible at a point higher than the free-market equilibrium wage rate, resulting in an excess supply of labour

What is net migration?

Net migration is the difference between inward migration and outward migration

How does unemployment affect individuals?

Unemployment affects individuals by causing a loss of income, skills depreciation, and potential health issues

What is the balance of payments?

The balance of payments is a record of all financial transactions that occur between a country and the rest of the world

Define the current account

he current account records all transactions related to trade in goods and services along with payments related to the transfer of primary income and secondary income

What is the financial and capital account?

The financial and capital account records all transactions related to non-financial and financial assets, such as savings and foreign direct investment

What is a current account deficit?

A current account deficit occurs when the value of spending on imports is greater than the value of earnings from exports.

What is a current account surplus?

A current account surplus occurs when the value of spending on imports is less than the value of earnings from exports

Define visible exports

Visible exports are goods exported from a country generating money inflows.

What are invisible exports?

Invisible exports are services exported from a country generating money inflows

What is net primary income?

Net primary income consists of income transfers by citizens and corporations

What are current transfers or secondary income?

Current transfers or secondary income are typically payments at government level between countries, such as foreign aid

True or false?

The current account balance is often expressed as a percentage of GDP

True

The current account balance is often expressed as a percentage of GDP

How can raising tariffs affect the current account balance?

Raising tariffs can decrease the value of imports, potentially reducing a current account deficit

What does the interconnectedness of economies through trade mean?

The interconnectedness of economies through trade means that one country's imports are another country's exports, creating global interdependence