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, perperson
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
Does not recognise improvements in the quality of goods and services over time
slow to add and remove products from the basket of goods
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
Wage increases
Higher taxes
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
A depreciation in the exchange rate - imports become expensive, exports become cheaper
Lower interest rates - saving and borrowing more attractive