AQA A Level Economics - Section 8, Measuring Economic Performance

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four main macroeconomic indicators

• the rate of economic growth

• the rate of inflation

• the level of unemployment

• the state of the balance of payments

what is the national output

the output of all the goods and services produced by a country

how can output be measured

1. volume - the quantity of goods and services produced in one year

2. value - the value (£billions) of all the goods and services produced in one year (GDP)

other ways of calculating GDP

• the total amount of national expenditure

• the total amount of national income

how is economic growth measured

as a percentage

what is a boom

a sustained period of high economic growth rates

what is a recession

negative economic growth for two or more consecutive quarters

what is a slump

a sustained period of recession

what is an economic depression

a sustained economic downturn which lasts for a long period of time (several years)

what is nominal GDP

GDP that hasnt been adjusted for inflation, the figure is misleading as it will give the impression that GDP is higher than it is

what is real GDP

GDP that has been adjusted for inflation

what is GDP per capita

output per person

what is GDP per capita used for

to indicate the standard of living in a country

• the higher the GDP per capita, the higher the standard of living in a country

what is gross national income

the GDP plus net income from abroad (any income earned by a country on investments and other assets owned abroad)

what is gross national product

the total output of the citizens of a country, regardless of whether they are a resident

disadvantages of using GDP per capita to compare living standards

different countries use different currencies and the exchange rate might not reflect the true worth of the two currencies

what is purchasing power parity

PPP is the real value of an amount of money in terms of what you can actually buy with it.

• eg - $1 in Malawi will buy more goods than in a more developed country

advantages of using PPP to compare living standards

using PPP involves adjusting the GDP per capita to take into account the differences in purchasing power, which makes for a more accurate comparison

disadvantages of using GDP to make comparisons

• the extent of the hidden economy (economic activity that doesnt appear in official figures

• public spending - some governments provide more benefits, eg - two countries with similar GDP but one might spend more money per person to improve living standards

• the extent of income inequality

• other differences like the hours of work per week, working conditions, environmental damage and spending needs

what are index numbers used for

index numbers are used to show percentage changes in GDP over a period of time to make comparisons between two economies

what is inflation

1. the sustained rise in the average price of goods and services over a period of time

2. inflation can also be seen as a fall in the value of money

what is negative inflation/deflation

where the average price of a good or service is falling

what is hyperinflation

when prices rise extremely quickly and money rapidly loses its value

what is disinflation

where the rate of inflation is slowing down, the prices are still rising but at a lower speed

what is the retail price index (RPI)

a measure of the general level of prices based upon a basket of 650 common household goods, each contributing to the overall price level proportional to their share in consumer expenditure.

what is the first survey used in the RPI

the living costs and food survey

• used to find out what people spend their money on and what proportion of income is spent

what is the second survey used in the RPI

the second survey is based on prices - it measures the changes in price of around 700 commonly used goods (the basket of goods).