Measures of economic performance

2.1, Economic growth, Unemployment, Balance of Payments and Inflation

Structural unemployment

The missmatch of workers and jobs available

Frictional unemployment

the stage of unemployment as workers change jobs

Seasonal unemployment

Predictable unemployment cause by changes in demand over a year

Cyclical Unemployment

when change or a lack of demand in one area causes unemployment

Unemployment

The number of people of working age who are willing and able to work at a current time but are unable to find work

underemlpoyment

workers cannot find a job suitable for thier qualifications and expirence or not enough hours to work

What can an increace in unemployment lead to

• Low economic growth

• Lower income and disposable income

• negative multiplier effect

• Fewer goods

• less competitive

• welfare costs and less tax revenue

What are the two mesurements of unemployment

• The claimant count

• UK Labor force survey

What are the benifits and weaknesses of the claiment count

• No cost

But…

• Excludes self employed, those who dont claim benifits, those under 18 and black market employment

what are the beniftis and weaknesses of the UK labour force survey

• Intrenationaly recognised, more accurate

But…

• Errors and expensive

What is real wage inflexibility

Wages remain above equilibrium so firms can not afford to employ so many workers

What are the positive effects of migration on unemployment

• Increases the labor pool

• increaces growth

• increaces production

What are the negitive effects of migration on unemployment

• Increaces competion

• If job growth is low unemployment can rise

What are the effects of unemployment on workers

• Lower income

• Reduced standard of living

• Loss of skill over time

What are the effects of unemployment on consumers

• Less choice in products

• lower purchasing power

• lower confidence

• lower demand

What are the effects of unemployment on firms

• Lower profit

• less incentives to invest

What are the effects of unemployment on goverment

• Higher benefits cost

• lower tax revenue

• worsening of the budjet

what are the four ways to mesure economic growth

• Rate of growth

• level of unemployment

• rate of inflation

• balance of payments

GDP

• Gross domestic product

What are substitutes for GDP

• Green GDP

• GNI

• GNH

• Happy planet index

• HDI

what is nominal GDP

GDP unadjusted for Inflation

what is real GDP

Adjusted for inflation

What is the definition of GDP

• The total market value of all goods and services in an economy over a period of time

What can GDP show

• Living standard

• level of economic growth

• comparison with other countries and years before

What are the downsides of GDP

It ignores…

• Inequality

• externalitys

• Quality of life aspects

Can be…

• Double counted

• informal activity

• human errors

What is Volume

• The quantity of goods and services produced in one year

what is value

• the calculated value of the goods and services in one year

What is GNI

Gross national income

• The total income + net factor income

what is GDP capita good for

• Shows the standard of living

• purchasing power of individuals

Weaknesses of GDP per capita

• Ignores inequality remittences

• Foriegn direct investment has all profits returned abroad

what is purchasing power parity

Mesures the value of curency from driffrent countries by using a basket of goods

what are the advantages of the PPP

• Realistic

• gives ideas of living standards

• reduces distortion of exchange rates

what are the components of the balance of payments

• Current account

• Capital account

• Finacial account

what is the balance of payments

• A record of a country’s trade transactions with the rest of the world

What is the relationship with the balance of payments and other goverment objectives

• Deficit = decreace in AD

• Deficit = increace in uneployment and decreace in production

• Surplus = Exports and AD increace

• Deficit = weakens gov finances

• Deficit = Weakens currency

What are the positive effects of interconectiveness

• Greater choice

• Growth

• Specialisation

• Lower prices

Weaknesses of interconnetiveness

• More effected by shocks

• ressesions spread

• dependency

inflation

A sustained increace in the general price of goods and sevices in a economy over agiven period of time leading to a fall in pruchasing power

Deflation

A sustained decreac in the general price of gooda and services in an economy over a given time bellow 0%

Disinflation

The fall in the rate of inflation - prices continue to rise but at a slower rate

what does CPI stand for

Consumer prices index

what are the charecteristics of the CPI

• Geometric

• mesures All households

What is the RPI

Retail price index

What are the charecteristics of the RPI

• The average price change of a basket of goods and services over a time

Made up from…

- two surveys

• Wieghted basket of goods

• Arithmitic

weaknesses of the RPI

• Excludes top 4% of incomes

• only changes once every year

weaknesses of CPI

• Doesn’t include home prices

• less inclusive of living pressures

• No council tax or mortgages included

Causes of inflation

• Cost push

• Demand Pull

• Increace in money suply

|Effects of inflation on Buisness

• Difficult to plan for future

• low confidence

• consumer spending is disrupted = hard to suply goods

• menu costs

effects of inflation on consumers

• Less purchasing power

• uncretanty results in increaces spending

• savings and pensions loose value

• more shopping around

• more debt and fall in living standards

effects of inflation on goverments

• Balance of payments makes UK less competitive

• income tax to be kept inline with inflation

• benifits increace

• reduced investment

• unemployment

effects of inflation on workers

• Unemployment

• fixed wages struggle

• Big low income unemployment struggles