Measures of economic performance

• Equation of Sum of all production?


  Final value - cost
• Equation of sum of expenditure 


  C + I + G + (x-m)
• Equation of sum of income


  Wages + rent + profit
• GDP adjustments:

  • GDP per capita
  • Growth YoY% change
  • Nominal Vs Real
  • Volume vs value
  • Purchasing power parity
• GDP is the standard measure of output, which allows us to compare countries. It is a value of all goods and services produced in a country within a year.
• Gross national income is the value of goods and services produced by a country over a period of time plus net overseas interest payments and dividends.
• Gross national product is the value of goods and services over a period of time through labour or property supplied by citizens of a country both domestically and overseas.
• Purchasing power parity ‐ The exchange rate between two currencies that reflects the relative purchasing power of the two currencies.
• Problems with GDP:

  • Inaccuracy of data - doesnt take into account black markets, home produced goods, and errors in calculting the inflation rate
  • Inequalities - an increase in GDP may be because of one groups income and therefore not representative.
  • Quality of goods and services
  • Comparing different countries
  • Spending
• Inflation is the general price level increasing in the economy which erods the purchasing power of money.
• Deflation is the fall of prices and indicates a slow down in the rate of growth of output in the economy.
• Disinflation is a reduction in the rate of inflation
• Problems with inflation:

  • Erodes the value of money, savings and wages
  • Uncertainty leads to lower consumers and business confidence
  • Less internationally competitive so leads to fewer experts : Consists of menu costs, show leather costs and political and psychological costs.
• Positives of claimant count 


  • Easy and cheap to collect (JSA + UC)
• Negatives of claimant count


  • May be susceptible to policial manipulation
  • Excludes people who are out of work
• Positives of international labour org (ILO)


  • More accurate
  • Based on international standards
• Negatives of international labour org (ILO)


  • More costly to compile
  • Only need to work for 1 hour to qualify
  • Time lag
• Seasonal unemployment solution?


  • Diversification in jobs
• Frictional unemployment solution?


  Internet - allowing to find new jobs
• geographical unemployment solution?


  • transportation / telecommunication / Mobility
  • Allows workers to travel to get a job
• structural unemployment solution?


  • Education and training
• Real wage unemployment solution


  Causes : minimum wage and trade unions with deflation.
• Impact on workers when unemployed:

  • Loss of income
  • Fall in living standards
  • Pyshcological and social costs
  • Loss of skills
  • Less attractive to potential future employer.
• Impact on firms when unemployed:

  • fall in the demand for goods and services
  • fall in demand further back along the supply chain
  • Decrease in profit
  • Redundancy
• Impact on Government when unemployed:

  • Increase in welfare spending
  • fall in tax revenue: income, corporation and vat tax
  • Increase in government borrowing
  • Political pressure
• Impact on economy when unemployed:

  • Loss in GDP
  • Under utilisation of factor inputs
  • Hysterisis
• Define hysterisis


  When a deep recession not only damages actual growth but also potential growth.
• Pros of Migration

  • Economic growth
  • Flexible labour market
  • fill job vacancies
  • working migrants provide a net fiscal benefit
• cons of Migration

  • Potential fall in real wages
  • Increased pressure on local public services
  • Dependents can be a fiscal drag
  • remittances
• under - employment

  The underemployed are those who are in ​part time or zero hour contracts when they would prefer to be full time and people who are ​self-employed but would rather be employees.
• Significance of changes in activity:

  • Increases in inactivity will decrease the size of the labour force, therefore causing a fall in ​productive potential of the country​. There will be a lower GDP and lower tax revenues as less people are working.
  •  However, decreases in inactivity could just result in more people being unemployed if there are ​no jobs available​ to them.
• The ​current balance ​= Balance of trade + Balance of invisibles + Net income and current

  transfers.
• The balance of payments is a ​record of all financial dealings over a period of time between economic agents of one country and all other countries​. Imports are when goods/services come in, so money goes out. Exports are when money comes in, so the good/service goes out.
• Trade in goods: These are known as visibles because you can physically see them. They are goods that are traded, whether raw materials or finished goods. The difference between visible exports and visible imports is known as the balance of trade.
• Trade in services: These are services traded in or out of the country, known as invisibles.
• Governments tend to have four main objectives: low unemployment, low and stable inflation, economic growth at a similar rate to other economies and a balance of payment equilibrium, including current account balance.