Please enable JavaScript.
Coggle requires JavaScript to display documents.
ECONOMICS THEME 2 - TOPIC 2.1 - MEASURES OF ECONOMIC PERFORMANCE - Coggle…
ECONOMICS THEME 2 - TOPIC 2.1 - MEASURES OF ECONOMIC PERFORMANCE
economic growth
economic growth is the rate of change of output and it's an increase in the long term productive potential of the country
typically measured by the % change in real GDP per annum but can also be shown through a shift of PPF
Gross Domestic Product
is the total value of goods and services produced in a country within a year
its an indicator of the standard of living in a country
total GDP
represents overall GDP for the country
GDP per capita
is the total GDP divided by population
real GDP
strips put the effects of inflation whereas
nominal GDP
doesnt
nominal
is described as the
value
of national income whereas
real
is described as the
volume
problems with using
GDP
to compare standard of living...
inaccuracy of data
due to some countries being inefficient at collecting data and things such as black markets
doesn't take into account home-produced services such as farmers who consume their own crops
doesn't take
inequality
into account as a GDP increase may be due to a growth in income of one person
doesn't take
quality
of goods into account
some types of expenditure such as defence increases GDP, but doesn't positively impact citizens
other income measures...
Gross National Income (GNI)
is the value of goods and services produced by a country over a period of time plus what a country earns from overseas investments but also minuses money sent over from foreigners
Gross National Product (GNP)
is the value of all the goods produced by citizens of a country, whether they live in the country or not
making comparisons about growth
over time
: changing national income levels will show us whether the country has grown or shrunk over a period of time. The data is compared to other countries in a set period of time to put it into context
between countries
: when countries have a difference in population, its important to use per capita figures to work out living standards
also important to use real GDP figures as inflation might suggest growth in GDP but actually the price of goods has just gone up. Inflation is also different in different countries
Purchasing Power Parties
an exchange rate of one currency for another which compares how much a typical basket of goods costs in each country
useful as it takes into account cost of living when comparing countries
e.g big mac index
employment and unemployment
employment
is the number of people employed in the UK economy
unemployment
is the number of people out of work but are actively seeking for it
claimant count
is the number of people receiving benefits for being unemployed
international labour organisation and UK labour force survey
through the ILO, anyone over 16 can be classed as employed, unemployed or economically inactive
the labour force survey counts the number of people who have looked for work in the last 4 weeks and are able to start work in the next 2 weeks
the
underemployed
are those who are in part time or zero hour contracts when they would prefer to be full time
also self employed people who would rather be employees
significance of changes in activity
increases in activity will decrease the size of the labour force, therefore causing a fall in the countries productive potential
there will be a lower GDP and lower tax revenues as less people are working
however, decreases in activity could result in more people being unemployed if there are no jobs available to them
types of unemployment
structural unemployment (when an entire industry goes through major change e.g robots)
frictional unemployment (when people move between jobs)
cyclical unemployment (due to a lack of demand in the economy)
seasonal unemployment (changes through seasons + weather)
classical unemployment (real wages forced above market clearing level)
hidden/voluntary unemployment (people who aren't counted by the statistics)
migration
migration
leads to increased jobs (mainly in lower skilled jobs)
immigrants can setup businesses which supply jobs
larger population = more demand = more emloyment
however, they can reduce wages due to more supply of labour and lead to unemployment for UK born citizens
impacts of unemployment
firms
less customers
smaller pool of skilled ppl to employ
consumers
less goods to buy or less money to spend
however, firms may have sales to spike demand
workers
loss of income and possible depression
loss of skills over long time
government
fall in tax revenue and more welfare payments
budget deficit
society
social deprivation
lower AD
loss of national output
Balance of Payments
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
= goods/services come in, money out
exports
= money in, good/service goes out
components of the balance of payment
the balance of payments is made up of the
current account
(which records payments for the purchase and sale of goods + services) and the
capital and financial account
which records flows of money associated with saving, investment, speculation and currency stabilisation
the balance of payments looks at where money flows
current account
split into different parts...
trade in goods
- these are known as "visibles" and they're goods that are traded. The difference between visible imports and visible exports is known as the balance of trade
trade in services
- are services traded in or out of the country, known as "invisibles". A holiday to spain by a british family is an invisible import as money leaves the UK and goes to spain
the balance of trade in goods and services is the balance of trade + balance of invisibles
income and current transfers
e.g a british person in another country sending profits back to UK
current account + capital account = financial account
BOP MUST BALANCE!!!
e.g...
UK buys iphones from china (negative on current account)
chinese banks invest this money into UK stock market (positive on financial account)
cancel eachother out
Inflation
inflation
is the general increase of prices in the economy
deflation
is the fall in prices and indicates a slowdown in economic growth
disinflation
is a reduction in the rate of inflation
Consumers Price Index (CPI)
the office for national statistics collects prices on 710 goods and services and the prices are updated every month
all these prices are combined using info on the average household spending and it takes into account how much is spent on each item
limitations of CPI
not totally representative as it doesn't account for every single good
doesn't include price of housing which has raised a lot
difficult to compare with old figures as its recent
Retail Price Index (RPI)
very similar to CPI but includes housing costs such as mortgages and it also excludes the top 4% of income earners
causes of inflation
demand pull
inflation can be caused by an increase in AD
cost push
a decrease in AS may push prices up as when firms costs have risen, they will increase prices
growth of money supply
too much money in the economy and no increase in supply will force prises to rise
effects of inflation
firms
british goods become more expensive abroad
deflation will cause demand to fall as people will constantly be waiting for cheaper prices
changing prices mean firms have to change menus, labelling, etc...
governments
if gov fails to change taxes in line with inflation then government revenue will decrease
however, if they fail to change income tax allowances (how much income is tax free) then gov income will increase
consumers
if incomes don't rise with inflation, living standards will drop
those in debt can pay it off cheaper
workers
if workers don't receive wage rises then they will be worse off and living standards decrease
deflation could cause some staff to lose jobs as there is a lack of demand in the economy
some of these costs can be reduced if inflation is anticipated which can be done through
indexation
so wages or taxes are increased with inflation