theme 2 uk economy performance + policies

• Macroeconomics: The study of the economy as a whole, including the production, distribution, and consumption of goods and services.
• What is gross domestic product (GDP)?

  The total value of all final goods and services produced in a country in a given year
• Explain the difference between real and nominal GDP

  Real: An estimate of the volume of GDP taking into account changing prices through time e.g. inflation

  Nominal: The value of GDP based on current prices, taking no account of changing prices through time
• Explain the difference between total and per capita GDP

  Total GDP: The total value of goods and services produced by an economy

  Per capita: The total value of goods and services produced by an economy, per person
• What is the purpose of real GDP?

  Measure economic output
• Explain the difference between value and volume of exports


  Value: refers to how much money you got for this volume

  Volume: refers to quantity
• Explain the difference between gross national product (GNP) and gross national income (GNI)

  GNP: total amount of goods produced in an economy

  GNI: total of all the amount of income earned per person in an economy
• Advantages of GNI

  • displays the development of a country
  • clear measure
  • easy to define
  • agreed international standard
  • takes into account population size
• Disadvantages of GNI

  • doesn't take into account the value of money
  • focuses on formal economic activity - not informal jobs
  • data quality may vary
  • doesn't take into account education, healthcare or environmental change
  • doesn't compare the happiness of a nation's citizens
  • measurements may be distorted by exchange rate effects
• Income

  The amount of money received on a regular basis e.g. salary/wages
• Wealth

  The accumulation of assets e.g. property, cars, stocks + shares
• Why must we be careful when comparing GDP across different countries?

  GDP figures for different countries must be converted to a common currency, such as the US dollar, and this may give misleading figures
• Why must be careful when comparing GDP over time?

  Changes in the level of prices e.g. inflation can make it difficult to distinguish between changes in the quantity of goods and services produced and changes in their prices.
• What is meant by purchasing power parity (PPP)?

  Estimates how much the exchange rate needs adjusting so that an exchange between countries is equivalent, according to each currency’s purchasing power
• Why might PPP be useful?

  Helps to minimise misleading comparisons between countries
• PPP exchange rate = cost of goods in a country / cost of goods in US$
• Indicators of development in a country

  • levels of homelessness
  • levels of benefits
  • size of the population + work force
  • levels of retirement
  • happiness levels using surveys
• How is the ONS national wellbeing indicator measured?

  It should give a wider picture of society and the standard of living within the UK, through subjective and objective measures e.g. survey on national wellbeing
• What does the easterlin paradox show?

  Happiness does not increase with income beyond a certain point.
• Why does the easterlin paradox show this idea?

  Social comparison
• What is inflation?

  A sustained rise in the general price level in an economy
• What is disinflation?

  A fall in the rate of inflation - price is still increasing but the rate has reduced
• What is deflation?

  A fall in the average level of prices (negative inflation)
• Explain what is consumer price index (CPI)?

  The 'cost of living' index and is a measure of the general level of prices in the UK
• Explain how CPI is calculated

   By collecting data on the prices of a large "basket" of goods and services that represent the typical purchases of a consumer. Then, this "basket" of goods is given a weight based on how important it is in the overall economy
• Give 3 limitations of CPI as a measure of inflation

  1. Does not recognise improvements in the quality of goods and services over time
  2. slow to add and remove products from the basket of goods
  3. the basket of goods is only representative of the average household
• How often is CPI and RPI calculated?

  Monthly
• Approximately how many goods and services are in the basket of goods?

  744 (as of 2024)
• At approximately how many locations are price data taken?

  Around 150 locations
• How often are weightings updated?

  Every year
• Give an example of 1 product that has been added to the basket over the last year and 1 which has been removed

  Good added: air fryer

  Good removed: hand hygiene gel
• Explain the difference between consumer price index (CPI) and retail price index (RPI)

  CPI: includes university accommodation fees and stockbroker charges which are not included in the RPI

  RPI: includes all housing costs, including mortgage interest payments and council tax. It also includes the road fund licence and television licence which are not included in the CPI
• CPI is a price index that measures the price changes in a basket of goods that a consumer faces.
• RPI uses a different basket of goods/services to measure inflation and the average is calculated in a different way
• Is the CPI or RPI higher?

  RPI as it includes housing costs, such as payments on mortgage interest and council tax.
• What is CPIH?

  Consumer Price Index including owner-occupiers' housing costs.
• Explain what is meant by cost-push inflation?

  A situation where increased costs of production leads to firms increasing their final prices, leading to rise in general price level, protecting profit margins

  
• Give 3 possible causes of cost-push inflation

  1. Wage increases
  2. Higher taxes
  3. Higher raw material costs
• Explain what is meant by demand-pull inflation?

  A situation where aggregate demand exceeds aggregate supply leading to an increase in the general levels of price

  
• Give 3 possible causes of demand pull inflation

  1. A depreciation in the exchange rate - imports become expensive, exports become cheaper
  2. Lower interest rates - saving and borrowing more attractive
  3. Lower taxes