E2.1 -measures of economic performance

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DEFINE ECONOMIC GROWTH
SR-increase in GDP. LR- improvement in the productive capacity and potential in an economy
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GDP
the total value of the final goods and services produced in an economy in one financial year
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MEASURING GDP
INCOME-total earnt. EXPENDITURE-total spent. PRODUCTION-value of goods and services produces. (should all equate to the same value)
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REAL GDP
total value of goods and services produced in an economy in one year after adjustment of inflation (constant price level)
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GNP
GDP + value earned from goods produced abroad (goods+service produced in or out of the country by citizens)
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GNI
GDP + net income earned abroad ( adds earnings from overseas investment+interest and subtracts what foreigners working in the country send home
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DEFINE ECONOMIC GROWTH RATE
% increase in real GDP over a certain period of time
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* DOES A HIGH GROWTH RATE NECESSARILY MEAN A HIGH STANDARD OF LIVING?
growth↑ income↑ (but is it real income) choice/variety↑ (but is there work:leisure ratio) can afford more (but is it GDP per capita). overall, subjective
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PURCHASING POWER PARITIES
an exchange rate of one currency for another that compares how much a typical basket of goods in the country costs compared to another country. alternative to using exchange rates for GDP comparison. takes account cost of living. eg Big Mac index
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PROBLEMS OF USING GDP TO COMPARE STANDARD OF LIVING
inaccuracy of data, inequalities, quart of goods and services not measured, comparing different currencies, doesn't include shadow economy, value of non marketed output, environmental considerations,
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NATIONAL HAPPINESS
4 key questions about life satisfaction, anxiety, happiness and worthwhileness on a scale of 1-10. happiness and income are more positively related at low incomes, higher levels of income aren't associated with increases in happiness
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INFLATION
the general average increase of price level in an economy which erodes the purchasing power parity of money
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DEFLATION
the fall of general average price level in an economy, indicates a slowdown in the rate of growth of output in the economy
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DISINFLATION
a reduction in the rate of inflation, price level still increases but at a slower rate
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RPI
retail price index- basket of goods method, includes mortgage interest repayments, excludes pensioners and the highest income households
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CPI
consumer price index- weighted basket of goods method, doesn't include mortgage interest repayments, over 700 goods and services,
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LIMITATIONS OF CPI
doesn't take into account every single good, so might not measure true inflation, doesn't include the price of housing, difficult to make comparisons as it is a recent index and inflation was measured by RPI up until 1996
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CAUSES OF INFLATION
DEMAND PULL-increase in AD, any factor which increases AD was to increase, then inflation would increase. COST PUSH- decrease AS may also increase the price level. cop↑ AD↑ business PL↑ to keep profit margins GROWTH OF MONEY SUPPLY mv=pt
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EFFECT OF INFLATION ON CONSUMERS
if incomes don't rise with inflation, less to spend, SOL↓. those in debt able to pay it off at a price which s at a cheaper value. those who have saved will lose out at their money is worth less
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EFFECTS OF INFLATION ON FIRMS
if inflation in Britain is higher than other countries, British goods more expensive, less competitive, more difficult to export,, BOP↓. deflation not goods as postpone purchasing, D↓Profit↓confidence↓investment↓. menu label changing
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EFFECTS OF INFLATION ON GOVERNMENTS
if the government fails to change taxes set at a certain amount in line with inflation , real government revenue will decrease
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EFFECTS OF INFLATION ON WORKERS
if workers dont get yearly pay rises of the rate of inflation, PPP will decrease and so will SOL. weaker unions tend to be most affected as they are unable to win wage rises in line w inflation. trade off between unemployment and inflation (Philips)
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DEFINE UNEMPLOYMENT
when people are able, available and actively seeking a job for over 4 weeks and able to start within 2 weeks- but still having no job
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JOB SEEKERS ALLOWANCE / CLAIMANT COUNT
claimant count is the number of people claiming JSA (benefits). *fraud,pride issues,eligibility criteria, 18+ *cheap,easy,
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INTERNATIONAL LABOUR ORGANISATION (ILO) AND UK LABOUR FORCE SURVEY (LFS)
survey of 60,000 households to find out how many people are unemployed *people working in the hidden economy would still say unemployed, only a sample, higher than CC bc some aren't eligible for benefits but are still unemployed, 16+
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UNDER-EMPLOYMENT
employed but are over-qualified for the job, not working where you have qualifications/experience in *not included in unemployment statistics, increases in recessions
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FRICTIONAL UNEMPLOYMENT
due people moving between jobs, caused by new workers entering the market or people who have chosen to leave their previous job. short term, not a serious problems
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STRUCTURAL UNEMPLOYMENT
long term decline in demand in an industry leading to reduction in employment. causes- increasing international competition or technology, lack of geographical and occupational mobility. types: regional/sectoral/technological
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SEASONAL UNEMPLOYMENT
when employment is strongly seasonal in demand. industries such as tourism, agriculture and industries that involve the seasons e.g. surfing instructors. little can be done to fix this in a FM economy, apart from developing the mobility of labour
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CYCLICAL UNEMPLOYMENT
due to general lack of demand for goods and services. aka Keynesian 'demand deficient' unemp. occurs in recession/steep slowdown in growth-plant closures, business failures, firms ↓employment, to keep profit. ↑productivity, - output gap
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REAL WAGE INFLEXIBILITY
result of real wages being above their market equilibrium price
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EFFECT OF UNEMPLOYMENT ON CONSUMERS
incomes↓SOL↓, negative multiplier effect, loss of national output, fiscal loss, social costs
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EFFECTS OF UNEMPLOYMENT ON FIRMS
C↓profit↓, uncertainty↑investment↓FDI↓ * larger pool of workers to choose from in SR but smaller pool in LR due to deskilling, existing employees may work harder to keep jobs ↑productivity
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EFFECTS OF UNEMPLOYMENT ON WORKERS
laid off workers may find their skills become obsolete/out of date
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DEFINE BALANCE OF PAYMENTS
the difference between monetary inflows and outflows of a country
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CURRENT ACCOUNT FEATURES
trade in goods, trade in services, transfer payments, investment income.
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BOP/CURRENT ACCOUNT DEFICIT CAUSES
INFLATION-(↑COP-cost push. ↑GROWTH-demand pull), less int competitive X↓, consumers import more as cheaper M↑. HIGH CONSUMER SPENDING- MPM on foreign goods. HIGH EXCHANGE RATE-less int competitive X↓, cheaper to buy imports M↑. NON PRICING-poor qual.
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BOP/CURRENT ACCOUNT DEFICIT NEGATIVES
UNEMPLOYMENT- ↑M↓X, domestic goods less demanded, less output, less derived demand for labour. LOWER GROWTH- component of AD, left. SLOWS CIRCULAR FLOW OF INCOME- M>X net leakage, negative multiplier. OVER RELIANCE-external shocks
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BOP/CURRENT ACCOUNT DEFICIT POSITIVES
TYPE OF IMPORT- imported capital, increases AD + AS, higher productivity, less cost per unit, international competitiveness, LR X↑M↓. INCREASED SOL- more variety, choice, high competition=lower prices. SUSTAINABLE- less pollution, less use of resourc
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GDP

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the total value of the final goods and services produced in an economy in one financial year

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MEASURING GDP

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REAL GDP

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GNP

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