2.1. Measures of Economic Performance

What is the definition of economic growth?

Economic growth is the rate of change of output, indicating an increase in the long-term productive potential of a country.

How is economic growth typically measured?

Economic growth is measured by the percentage change in real GDP per annum.

What does GDP stand for and what does it measure?

GDP stands for Gross Domestic Product and measures the total value of goods and services produced in a country within a year.

What differentiates GDP and GDP per capita?

GDP is the total output of an economy, while GDP per capita is the GDP divided by the population, reflecting average output per person.

What is the difference between real GDP and nominal GDP?

Real GDP strips out the effects of inflation, while nominal GDP does not.

What is Gross National Income (GNI)?

GNI is the value of goods and services produced by a country plus net overseas interest payments and dividends.

What does Gross National Product (GNP) represent?

GNP represents the total value of goods and services produced by citizens of a country, regardless of where they are located.

What is Purchasing Power Parity (PPP)?

PPP is an exchange rate that compares the cost of a typical basket of goods between two countries.

How does using PPP help in economic comparisons?

It accounts for cost of living differences, providing a better comparison of living standards between countries.

What are some limitations of using GDP as an indicator of living standards?

GDP may underestimate economic activity due to hidden markets, non-traded services, and does not capture income distribution.

What is inflation?

Inflation is the general increase of prices in an economy, eroding purchasing power.

What are the three types of inflation noted in the lecture?

Demand-pull inflation, cost-push inflation, and disinflation.

What is the purpose of the Consumer Price Index (CPI)?

CPI measures the average change in prices over time of a basket of goods and services.

What is the Retail Price Index (RPI)?

RPI is similar to CPI but includes housing costs like mortgage payments.

What are the microeconomic effects of inflation on consumers?

Inflation can decrease purchasing power and create psychological effects leading to decreased spending.

What measures unemployment according to the Claimant Count?

The Claimant Count is the number of people receiving benefits for being unemployed.

What criteria does the ILO use to classify someone as unemployed?

A person must be without work, able to work, seeking work, and have actively sought work in the last 4 weeks.

What is frictional unemployment?

Frictional unemployment occurs when individuals are temporarily between jobs.

What is structural unemployment?

Structural unemployment results from long-term changes in the economy that reduce demand in certain industries.

What is cyclical unemployment?

Cyclical unemployment results from a general decline in demand for goods and services during economic downturns.

What is the significance of changes in economic activity?

Changes in economic activity can indicate labor market health and influence GDP and tax revenues.

What do current account deficits and surpluses represent?

Current account surpluses indicate exports greater than imports, while deficits indicate imports exceed exports.

How does a high economic growth rate affect the current account balance?

High economic growth may lead to a current account deficit due to increased imports from higher domestic demand.

What does the balance of payments record?

The balance of payments records all financial dealings over time between a country and others.

What is the impact of high unemployment on society as a whole?

High unemployment can lead to social deprivation, crime, and reduced national output.

What is the relationship between international trade and national balances?

In theory, all country balances should add up to zero, as what one country exports, another imports.

What are the components of the balance of payments?

The current account, capital account, and financial account.

What is the role of taxes in relation to inflation?

If the government doesn't adjust taxes in line with inflation, it may fall short in real revenue.

What causes demand-pull inflation?

Demand-pull inflation occurs when aggregate demand exceeds aggregate supply in the economy.

What does the term 'real wage inflexibility' mean?

Real wage inflexibility occurs when wages cannot adjust to market-clearing levels, leading to unemployment.

What are the psychological effects of inflation on consumers?

Inflation can make consumers feel less wealthy, affecting their spending behavior.

How does unemployment affect firms?

Unemployment can lead to decreased demand for goods, affecting firm profits and reducing hiring.

What is under-employment?

Under-employment refers to individuals working in jobs below their skill level or preferring full-time work but being in part-time jobs.

What is the relationship between immigration and employment?

Increased immigration can lead to lower wages for low-skilled jobs but can also create jobs.

How does the government intervene in skills shortages?

The government may need to step in to provide training where firms do not, to reduce structural unemployment.

What factors contribute to real wage rigidity?

Minimum wage laws and reluctance to reduce pay can contribute to real wage rigidity.

How do governments aim for a balance of payments equilibrium?

By encouraging export-led growth while managing inflation and unemployment.

What is the Easterlin Paradox?

The Easterlin Paradox suggests higher income doesn't always correlate with increased happiness beyond a certain level.

What indicates a rise in activity rates?

Increases in economically active individuals participating in the labor force, affecting labor supply.

What can occur if the labour force shrinks?

A shrinking labour force may lower a country’s GDP and tax revenues.

What is the Impact of inflation on debts?

Inflation benefits debtors as they pay back loans with less valuable money but harms creditors.

What is a transfer payment?

A transfer payment is a non-exchange payment made by the government to individuals without an increase in output.