4.2.1 THE MEASUREMENT OF MACROECONOMIC PERFORMANCE [4.2.1.4 USES OF NATIONAL INCOME DATA]

What goes on the axis of a macro diagram?

General Price Level, Real GDP

What does Real GDP mean?

Inflation has been stripped out

Why do people use Real GDP?

As inflation pushes numbers up, which may make it seem like the country is performing better than it actually is

Define national income

Measures the monetary value of the flow of output of goods and services produced in an economy over a period of time

Define national product (national output)

The flow of new output produced by different industries in a particular period (a year)

Define national capital stock

The stock of capital goods (building and machinery) in the economy that has accumulated over time

Define human capital

The skills, knowledge, and experience possessed by the population

Define national wealth

The stock of all goods that exist at a point in time that have value in the economy

Define consumption

Total planned spending by households on consumer goods and services produced within the economy

What other terms do economists use for "national income"?

National product, national output

What 6 things can measure the standard of living?

• improving human capital

• getting more people into property paid work

• a living wage can help to lift labor productivity

• accessible and high quality public services

• better/affordable housing to rent and buy

• wealth generated from successful businesses

Is there low or high productivity in the UK?

Low (there is a productivity puzzle in the UK)

What is the standard of living?

Associated with wealth (which is a stock), which could include: materials, goods, comfort

What is income?

A flow

How many NEET people are there in the UK? (How old are these people?)

1 million (16-24 year olds)

Why is there 1 million NEET people in the UK?

Lack of skills, failed by eduction system, may be due to geographical labor immobility or occupational labor immobility

How much have the UK government invested into council houses?

£16 billion

Why does real national income, real national output, real national expenditure and real GDP all equal the same as one another?

It is the same money flowing around the circular flow of income from households to businesses

Who is the money earned by and who is the money spent by?

• the money is earned by workers producing goods and services

• the money is spent by households on those goods and services

What does PPP stand for? And what does it mean?

Purchasing power parity (if something has parity with something it means it is equal)

What is the baseline indicator of national income and living standards?

Real national income per capita

How do you calculate real national income per capita?

Real GDP / population

What does the GDP per capita measure?

The average economic output per person in a country over a period of time (a year)

When looking at data/graphs, what are some significant points?

Largest increase/decrease, range

Which region is the "per capita for UK" highest?

London

Which region is the "per capita for UK" the lowest?

North East

Why is it lower in the North East?

Localized regional poverty in these areas (Margaret Thatcher - mines)

Does Andy Burnham want to redistribute the wealth?

Yes (but he wants Number 10 to be the powerhouse of the UK)

What is Purchahing power parity?

A way of comparing the purchasing power of different countries currencies

If some countries experience inflation, is there PPP?

No

Why is PPP used? (In terms of living standards)

To make more accurate comparisons of living standards and economic performance between countries

How do you calculate PPP?

PPP exchange rate = price of goods in country A / price of goods in country B

What does OECD stand for?

Organisation for Economic Co-operation and Development

What is the OECD?

International organization which helps to improve economic growth and world trade

Which currency is used as the base currency for PPP calculations?

The US dollar

What is the Big Mac index?

It measures each currency against a common standard - the hamburger sold by Maccies all over the world

Explain why the average price of a Big Mac in Switzerland is higher than Venezuela?

Switzerland has a higher cost of living, stronger currency and they tax consumption more than they tax income

Venezuela has a weaker currency as well as economic instability (due to a corrupt government)

What is gross income?

Income before tax

What is net income/disposable income?

Income after tax

Describe disposable income

The amount of money households have available for spending and saving after direct taxes such as income fax and national insurance contributions have been accounted for

What are the 2 types of tax?

Direct and indirect

Give an example of a direct tax?

Income tax

Give 3 examples of indirect taxes?

VAT (20%) - per value

Excise duty - per volume (alcohol, vapes, petroleum)

Corporation tax (19-25%)

What dont we pay VAT on?

Baby clothes, baby food, cake

What is corporation tax? Why is it an indirect tax?

Businesses pay this on their profits, so if they earn no profit, they pay no tax

What are business rates the same as?

Council tax (eg. Emptying bins)

What is the mean household disposable income in the UK? (In 2019)

£39,328

What is the median households disposable income in the UK? (In 2022)

£32,349

What are some limitations of data on income per head?

• hidden inequality

• doesn’t show distribution

• doesn’t account for cost of living

Is income per head accurate?

It is an average, so it can give a misleading impression of living standards because it doesn't show income inequality

What are limitations of National income accounts?

• figures are not accurate

• the “black economy” distorts figures

• arise in national living does not mean a rise in living standards

• they only measure paid activities

• national income often rises in time of war

• the figures say nothing about the distribution of income within a country

Does an increase in national income mean a rise in living standards?

No it doesn't not necessarily mean a rise in living standards. Eg, GDP may rise as the economy produces more goods/services but most of the extra income goes into higher income households

What factors does national income not include?

Leisure time, enviornmental pollution, health and crime rate (those that contribute to living standards)

What is the Gini coefficient?

A measure of income inequality in a country

Higher Gini coefficient = greater income inequality

What is the Gin coefficient if it equal 0 and 1?

0 = perfect equality - everyone has exactly the same income

1 = perfect inequality - one person has all the income and everyone else has none

If GDP rises, but the Gini coefficient rises too, who does this benefit?

Economic growth may be benefitting higher-income households disproportionately

What goes on each axis of the Gini coefficient?

X - population %

Y - income %

Why would income inequality have risen just before the GFC 2008?

Pre-crisis economic boom - in the years leading up to 2008 crash, the UK financial services sector experienced massive growth

Why is GDP a flawed guide to living standards?

• ignores the distribution of income and wealth

• need to consider changing working hours/work life balance

• does not include the value of unpaid work such as family care and voluntary activities

• rising real GDP may not sustainable

• defensive spending such as cleaning up the effects of pollution and waste

• may not capture value of free services including digital economy

Describe economic well-being

Refers to the overall standard of living and quality of life of individuals and households within an economy

What does economic well-being encompasses various aspects, what does this inclcue?

Income, consumption, access to basic needs and services, wealth accumulation, job security, social safety nets, overall life satisfaction

Is this economic growth or economic welfare?

Contributes to rising average living standards (GNI per capita)

Economic growth

Is this economic growth or economic welfare?

Well-being measure might include the level of inequality and median incomes

Economic welfare

Is this economic growth or economic welfare?

A broader measure of well-being (social and economic)

Economic welfare

Is this economic growth or economic welfare?

The sustained growth of real GDP over time

Economic growth

Is this economic growth or economic welfare?

Long-run increase in a country's productive capacity

Economic growth

Is this economic growth or economic welfare?

Many aspects of well-being are not material aspects of our daily lives

Economic welfare

What are some ways well-being may be measured?

Median household income, income equality (Gini coefficient), wealth and assets, underemployed, healthy life expectancy, education (literacy rates/education attainment), measures of pollution, happiness satisfaction surveys

What is subjective happiness?

This refers to the self-reported levels of happiness with one's life, usually determined by questionnaires

What are some factors that affect happiness?

Your personality and genetics, social influences (including a network of close friends), income and wealth, health, and ability to enjoy leisure time

What was the greatest source of happiness in 2019?

Relationships with partners

What was the smallest source of happiness in 2019?

Time spent on social media

What is the happy planet index?

A global measure of sustainable well-being that evaluates how efficiently nations use enviornmental resources to deliver long, happy lives for residents

What's the country with the highest happy planet index?

Costs Rica

What's the country with the lowest happy planet index?

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