2.1 Measures of Economic Performance

• Economic Growth: An increase in the production of economic goods/services compared from one period in an economy to another
• Real GDP: The total value of all goods/services produced in an economy in a 1 year period that is adjusted for inflation
• Nominal GDP: The total value of all goods/services produced in an economy in a 1 year period that is not adjusted for inflation
• What are the adv. and drawbacks of GNI?

  • Recognises all income that comes in and out of an economy
  • Can be used to make comparisons between countries

  - Excludes non-market transcations
• What are the adv. and drawbacks of GNP?

  • Good indicator of state of economy and provision of services

  - Can be manipulated by government so that they seem poor to collect more aid.
• Purchasing Power Parity: Rate at which currency of one country would have to be converted into another country's currency in order to buy same basket of goods in each country.
• Inflation: Sustained increase in average price level of goods/services in an economy
• Disinflation: A fall in the rate of inflation
• Deflation: A fall in the average price level of goods/services in an economy
• CPI: Measure of Inflation - basket of 700 goods/services that an average household would purchase and measures their prices as well as how they're weighed
• What are the Drawbacks of using CPI to measure Inflation?

  • Does not capture quality of products in basket
  • Only measures changes in consumption on an annual basis (Measured yearly) - not accurate
  • Prone to errors in data collection
• Retail Price Index (RPI): Measures basket of 700 goods, but includes council tax, mortgage interest payments etc.
• Demand Pull Inflation: When AD > AS, resulting in higher prices.

  ' Too much money chasing too few goods '
• Cost Push Inflation: Overall price levels rise as a result of increased costs of raw materials and labour - See a fall in AS
• Growth of Money Supply: Increase in supply of money lowers interest rates, generating investment as well as consumption levels rising due to more spending
• Exogenous Shock: Unexpected event outside an industry resulting in rapid market and performance changes
• Hedging: A contract between a firm and supplier to purchase goods at a fixed price for a certain period.

  (Both do not account for inflation)
• Claimant Count: Counts no. of ppl. claiming Unemployment benefits from the government (e.g. JSA)
• Labour Force Survey (LFS): A survey sent to random sample of popl. asking them if they are actively seeking for work but are unemployed
• Unemployment: State of not working but actively seeking work
• Employment: Fact of having a paid job
• What are the adv. and drawbacks of Claimant Count?

  • Cheap and easy to collect data
  • Systems are computerised - updated monthly

  - Not all unemployed ppl. claim benefits - inaccurate

  - Figures can be manipulated - can make it harder to claim JSA
• What are the adv. and drawbacks of Labour Force Survey?

  • More accurate - collecting real data and not computerised
  • Can be used to compare unemployment levels globally - internationally accepted measure of unemployment

  
  

  • Expensive and time consuming
  • Only updated annually
  • Cannot sample entire popl.
• Frictional Unemployment: When people leave their jobs and actively seek for a better job
• Structural Unemployment: Mismatch between jobs available and skills of unemployed
• Demand Deficient Unemployment: When workforce is reduced as a result of a fall in AD of good/service
• Seasonal Unemployment: When workforce stops as labour is not required until next season
• Real wage Unemployment: When National Minimum Wage are set above equilibrium levels - supply of labour > demand for labour
• What are the factors affecting Unemployment?

  • School leaving age of 18
  • No. of students entering higher education
  • Levels of net migration
  • Availability of Jobs
  • Level of taxes and benefits - if taxes are high, ppl. are disincentivised to work
• Balance of Payments: Record of all financial transactions that occur between a country and the rest of the world
• Current Account Deficit: Imports > Exports
• Current Account Surplus: Exports > Imports
• What are the adv. and drawbacks of GDP?

  • Measures overall growth/decline of a nation's economy

  • Shadow economy is not accounted for