Economic Performance Indicators

what are the four main indicators used to measure macroeconomic performance

• rate of economic growth

• rate of unemployment

• rate of inflation

• state of current accounts on the balance of payments

how do you measure economic growth in the short run?

by using the GDP

define GDP

the monetary value of total output of a country over a given time period.

define total output

the number of goods and services produced within a given time period.

how do you measure economic growth in the long run?

by looking at the increase/decrease in a country’s productive capacity.

define Gross National Income (GNI)

the monetary value of income generated by a country’s owned factors of production over a period of time.

What is a potential drawback of using GDP?

• It does include foreign output produced in the country, but does not include output produced by domestic firms abroad.

• SOme output is not counted and GDP may appear lower, e.g. black market, prostitution & cash-in-hand jobs are not accounted for.

• Output may be counted more than once- Double counting occurs when the value of intermediate goods is counted more than once, leading to an overestimation of GDP

What is a potential drawback of using GNI?

It does not include foreign output produced in the country, but does include output produced by domestic firms abroad.

What is the formula for calculating economic growth?

change in GDP/ Original GDP x 100

what is the difference between nominal and real GDP?

📌 Nominal GDP: Measured at current prices, includes inflation.

📌 Real GDP: Adjusted for inflation, shows actual economic growth.

✅ Key Difference: Real GDP removes price changes, giving a more accurate measure of growth.

What is GDP per capita and what is its formula?

used to give an indication of a country’s standard of living.

total GDP/ population size

what are the limitations of using GDP and GDP per capita to make comparisons between countries? 3 things

• type of output- wartime may increase GDP but the living standard decline as more output for war is being made

• negative externalities- if output increases but so does pollution, living standard declines but GDP increases

• income inequality: GDP per capita assumes equal distribution of income, but some people benefit disproportionately than others.

Who are unemployed people?

people of working age (16-65) who are willing and able to work but do not have a job

how is unemployment calculated?

no. of unemployed/ total workforce. x 100

what is the Claimant count?

no. of people claiming Job Seekers Allowance from the govt.

What are the pros of the claimant count?

• easy to obtain

• no cost in obtaining data

• updated monthly

what are the cons of the claimant count?

• underestimates figures as not every unemployed person wants to claim benefits

• may overestimate unemployment as some claim fraudulently

what is the labour force survey?

quarterly survey of 60,000 households who are asked to self classify as economically inactive, employed or unemployed.

what are some advantages of the labour force survey?

• includes those seeking work but not claiming benefits

• used internationally so can compare countries

what are some disadvantages of the labour force survey?

• expensive to collect data

• only generated quarterly

• may be susceptible to sampling errors

what is underemployment?

Underemployment occurs when workers are employed but not in jobs that fully utilize their skills, experience, or availability.

define inflation

a sustained increase in the average price of goods and services over a period of time causing a fall in the purchasing power of the given currency.

what are 3 main evaluative points on inflation?

• some goods prices may rise faster than average

• some goods prices will stay the same

• some gods prices will fall

What is disinflation?

when inflation occurs but at a lower rate than before

define deflation

when the average price of goods and services fall

what does the government want in terms of inflation?

low and stable rate, 2%

What two methods do the govt. use to measure inflation?

the Retail Price Index, RPI and the Consumer Price Index, CPI

How does the CPI work?

govt. makes a ‘basket of goods’ of most commonly bought goods, researches the price, and repeated every month/year

this is then calculated as a percentage change to find inflation.

what does the RPI account for that the CPI does not?

housing costs, e.g. mortgage payments, council tax etc.

RPI is usually higher because of this.

Why are the RPI and CPI important? 3 things

• wage negotiations- used as starting points in wage negotiations for employers/employees

• pensions/benefits- govt. uses it to plan on when to allocate more state provisions to prevent a rise in poverty

• intl. competitiveness- higher RPI & CPI make domestic goods look less competitive in foreign markets, so less exports and more imports.

what are the limitations of RPI and CPI?

• not fully representative- non-typical households may not have a car, but CPI includes prices of cars etc.

• errors- CPI and RPI basket of goods come from surveys which may have sampling errors

• changing quality- price of some goods may rise, e.g. mobile phones, but do not take into account increase in quality.

• time lags- only reported once per year, may miss short term changes in consumer spending

• changing items- changing basket items means prices are not being compared accurately year to year.