Measures of Performance

• What indicates economic growth?

  Rise in the value of GDP
• What does GDP measure?

  Quantity of goods and services produced
• What does a rise in economic growth signify?

  Increase in national output
• What are the benefits of economic growth?

  Higher living standards and more employment
• What is real GDP?

  GDP adjusted for inflation
• If the economy grew by 4% and inflation was 2%, what is real economic growth?

  2%
• What is nominal GDP?

  GDP not adjusted for inflation
• Why can nominal GDP be misleading?

  It may appear higher than actual value
• What is total GDP?

  Combined value of all goods and services
• What does GDP per capita measure?

  Average output per person in an economy
• What does 'capita' mean?

  'Head' or person
• Why is GDP per capita useful?

  For comparing relative performance of countries
• How is national income measured?

  • Gross National Product (GNP)
  • Market value of products by citizens
  • Includes income from overseas assets
  • Gross National Income (GNI)
  • Sum of value added by producers
  • Includes product taxes and primary income from abroad
• What is GNP?

  Market value of products by citizens
• How does GNP differ from GDP?

  GNP includes overseas production by citizens
• What is GNI?

  Sum of value added by all producers
• What are the limitations of GDP in comparing living standards?

  It does not indicate income distribution
• Why might GDP need recalculation in terms of purchasing power?

  To account for international price differences
• What is a hidden economy?

  Economic activities not accounted for in GDP
• How can hidden economies affect GDP comparisons?

  They can make comparisons misleading
• What does GDP fail to indicate regarding welfare?

  It does not measure overall welfare
• What alternative measures might be used to compare living standards?

  The happiness index and other measures
• What is inflation?

  Sustained rise in general price level
• What happens to purchasing power during inflation?

  It decreases as cost of living increases
• What is deflation?

  Average price level falls in the economy
• What is disinflation?

  Falling rate of inflation with rising prices
• What does a negative inflation rate indicate?

  Deflation
• What do deflationary government policies aim to do?

  Reduce aggregate demand (AD)
• How is the rate of inflation calculated in the UK?

  Using the Consumer Prices Index (CPI)
• What does the Family Expenditure Survey measure?

  Household purchasing power and spending
• How is the basket of goods for CPI created?

  Based on consumer spending patterns
• Why does petrol have a higher weighting than tea in the CPI basket?

  More income is spent on petrol
• How often is the CPI basket updated?

  Annually
• What are the key points to remember about CPI for exam questions?

  • A survey is used
  • Weighted basket of goods
  • Measures average price change of goods
  • Updated annually
• What is a limitation of the CPI when measuring inflation?

  It represents only average household spending
• How do different demographics affect CPI accuracy?

  Different demographics have varying spending patterns
• What percentage of the CPI index do housing costs account for?

  About 16%
• Why is CPI slow to respond to new goods and services?

  It is updated regularly but not instantly
• What does the Retail Price Index (RPI) include that CPI does not?

  Housing costs like mortgage interest
• Why does RPI tend to have a higher value than CPI?

  RPI includes housing costs