9. Measuring Macroeconomic Performance (AQA A Level Economics): Flashcards

The higher the Gini coefficient, the more unequal the distribution of income.

There will always be some frictional unemployment as workers move between jobs, making 100% employment impossible.

A trade-off occurs when achieving one macroeconomic objective makes it more difficult to achieve another.

As growth moves the economy closer to full employment, prices for scarce resources are bid up, causing inflation above the 2% target.

False.

Growth raises incomes and therefore imports, which worsens the current account balance.

Economic growth often increases pollution, negative externalities and the depletion of non-renewable resources.

During high growth, the profits of factor owners rise disproportionately to workers' wages, leading to greater inequality.

Growth driven by expansionary fiscal policy often requires a budget deficit.

True.

The priority of macroeconomic goals is set by the current government and may shift when it changes.

Keynesian economics dominated, placing importance on economic growth and full employment.

During 2008–2012, the UK experienced an economic recession, requiring policies to stimulate demand.

As the economy nears full employment, fewer workers are available, so wage inflation pushes up overall inflation.

Controlling inflation continued to be an important objective in the UK during the 1990s.

False.

Growth often increases pollution and depletes non-renewable resources, conflicting with sustainability.

A macroeconomic indicator is a metric used to measure progress towards a macroeconomic objective and provide a snapshot of economic performance.

Real GDP measures an economy's total output, whereas real GDP per capita divides real GDP by the population to give average output per person.

True.

Real GDP strips out the effect of inflation, while nominal GDP does not.

The CPI measures the change in the price of a fixed basket of consumer goods and services bought by a typical household.

Nominal GDP is the value of all goods and services produced in an economy in a one-year period, unadjusted for inflation.

The RPI includes housing costs such as mortgage interest and council tax that the CPI excludes, so it is usually higher.

Real GDP is nominal GDP adjusted for inflation.

False.

The Claimant Count has stricter requirements, so it usually records fewer unemployed than the ILO survey.

It surveys a random sample of around 60,000 households each quarter; respondents count as unemployed if they are ready to work within two weeks and have actively sought work in the past month.

A worker is unemployed if they are out of a job and actively looking for one.

A trade deficit occurs when a country's imports exceed its exports during a given period.

The current account, which records trade in goods and services plus net income and current transfers.

False.

Goods are visible exports and imports; services are the invisible ones.

Rising income and wealth increase the value of imports, pushing the current account towards a deficit.

An index number is a tool economists use to track changes in prices, quantities or economic activity over time.

The base period is given an index value of 100, against which all other periods are compared.

Index numbers standardise economic data to make comparisons between countries easier.

Inflation is the sustained increase in the general price level in an economy.

CPI = (cost of the basket in the current year ÷ cost of the basket in the base year) × 100.

True.

The percentage change between two CPI values represents the inflation rate.

They are weighted according to the proportion of household spending, so items with more spending carry a greater weight.

False.

The RPI includes housing costs excluded from the CPI, so it is usually higher.

The CPI is based on a household basket of around 700 goods and services.

The RPI includes items such as council tax and mortgage interest payments that the CPI excludes.

The base year is the reference period against which all future observations are compared, given an index value of 100.

Inflation rate = ((new CPI − previous CPI) ÷ previous CPI) × 100.

National income is the total value of the new output of an economy over a period of time.

It measures income earned by a country's residents abroad minus income earned by foreign residents within the country.

True.

A falling national income signals contraction, while a rising one signals economic growth.

GNI can be calculated as GDP plus net income from abroad.

Gross national income is the total income earned by a country's residents both domestically and abroad, equal to GDP plus net income from abroad.

A rising GNI per capita indicates higher average income, which generally improves the standard of living.

Purchasing power parity is an exchange rate that equalises the purchasing power of different currencies, so a basket of goods costs the same in each country when converted to a common currency.

Because currency values differ, so PPP is used to equalise purchasing power and allow a fairer comparison.

False.

GDP per capita is an average and hides significant differences in living standards within a country.

GDP gives no information on changes in the quality of goods and services over time, so falling quality can be missed.

GDP data does not include unpaid or voluntary work, such as family childcare.

GDP ignores the time taken to produce output, so a country generating the same income in fewer hours actually has a higher standard of living.

True.

The USA basket costs three times as much, giving a PPP of 1:3.