Measuring economic performance

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  • Measuring Economic Performance
    • Economic Growth
      • can be measured by change in national output (GDP)
        • 1. Volume  = quantity of goods and services produced on one year
        • 2. Value = calculating the value (£bns) of all the goods and services produced in one year
        • national output = national expenditure = national income
      • usually measured as a %
        • boom = long period of economic growth
        • recession = negative economic growth for 2 consecutive quarters
          • long recession = slump
        • (change in GDP/original GDP) x 100 = % change
      • Nominal GDP = GDP without adjusting for inflation
        • MISLEADING - nominal GDP gives the impression that GDP is higher than it really is
      • GDP per capita can indicate the standard of living in a country
        • (total GDP/ population) = GDP per capita
      • Using GDP to make comparisons has limitations
        • GDP and GDP per capita may not take some things into account
          • public spending - some govs provide more benefits = same GDP but different standards of living due to benefits
          • income inequality - similar GDP but distribution of income may be very different
    • Inflation
      • 2 ways to define inflation:
        • 1) inflation is the sustained rise in the average price of goods & services over a period of time
        • Inflation can also be seen as a fall in the value of money (the purchasing power of money falls)
      • inflation can be +ve or -ve
        • inflation = average price of goods is rising
        • deflation = average price is falling
        • hyperinflation = prices rise extremely quickly and money rapidly loses its value
        • disinflation = rate of inflation is slowing down,, e.g. from 6% to 4%
      • 2 main measurements used for inflation
        • RPI
          • living costs and food survey (6000 households) = what people spend their money on = weighting of each item calculated
          • 2nd survey measures changes in prices of 700 most commonly used goods & services = basket of goods
            • contents of basket change over time = basket reflects what average household may spend money on
          • price changes in 2nd survey x weightings in first survey = index number
            • inflation = % change to index number over time
        • CPI
          • similar to RPI, but there are 3 main differences
            • slightly different formula
            • some items are excluded from CPI: *council tax *mortgage payments
              • these differences mean that the CPI tends to be a little lower than the RPI
                • larger sample of population is used for CPI
                • slightly different formula
            • larger sample of population is used for CPI
      • CPI and RPI have limitations
        • info In surveys can be inaccurate
        • RPI excludes households in the top 4% of incomes
      • RPI and CPI are important for gov policy
        • they are used to help determine wages and state benefits
        • also used to measure changes in UK's international competitiveness
    • Unemployment
      • 2 ways of defining U%
        • level of U% = no. of people who are looking for a job but cannot find one
        • rate of U% = no. people out of work as a % of the labour force
          • used when comparing countries as different countries have different populations
      • 2 ways of measuring U%
        • CLAIMANT COUNT
          • number of people claiming U%-related benefits (JSA)
            • +ves: *data is easy to obtain *updated monthly = always current
            • -ves: *excludes people who do not claim JSA or are not eligible for it
        • LABOUR FORCE SURVEY
          • use a sample of the population and ask people who aren't working if they're actively seeking work
            • +ves: *more accurate than claimant count *internationally agreed measure = easy to compare countries
            • -ves: *expensive *less up to date    *sample may be unrepresentative
    • Balance Of Payments
      • refers to international flows of money
        • records the flow of money out of the country e.g. to pay for imported goods
          • value of goods ans services is calculated in the balance of payments
            • records the money flowing into the country e.g. payments from exported goods
        • records the money flowing into the country e.g. payments from exported goods
      • 4 sections to the current account
        • 1) TRADE IN GOODS ("visible trade") - visible imports or visible exports
        • 2) TRADE IN SERVICES ("invisible trade") - these can be imported or exported too
        • 3) INTERNATIONAL FLOWS OF INCOME earnt as salaries, interest, profit and dividends
        • 4) TRANSFERS OF MONEY from one person or government to another
      • The BoP isn't always balanced
        • flow of money out exceeds the flow of money in = DEFICIT
          • a deficit isn't necessarily a bad thing - BUT it coul;d be a sign that a country is UNCOMPETITIVE
        • flow of money in exceeds the flow of money out = SURPLUS

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