Measuring economic performance
- Created by: LaurenMontgomery
- Created on: 02-01-17 18:33
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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
- GDP and GDP per capita may not take some things into account
- can be measured by change in national output (GDP)
- 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
- these differences mean that the CPI tends to be a little lower than the RPI
- larger sample of population is used for CPI
- similar to RPI, but there are 3 main differences
- RPI
- 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
- 2 ways to define inflation:
- 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
- number of people claiming U%-related benefits (JSA)
- 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
- use a sample of the population and ask people who aren't working if they're actively seeking work
- CLAIMANT COUNT
- 2 ways of defining U%
- 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
- 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 flow of money out of the country e.g. to pay for imported 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
- flow of money out exceeds the flow of money in = DEFICIT
- refers to international flows of money
- Economic Growth
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