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Unit 2 summary- the Uk economy performance and policies
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Full detailed book notes which helped me pass economics alevel with A*. Includes everything you need to know. All other units also published
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, Theme 2 glossaryReal values : values that have been adjusted to remove the effects of inflation. The effects are removed using an index number that represents
the changes in prices and the results are called ‘constant values’
Nominal values: values that are measured in money terms. Nominal figures are the unadjusted ‘current values’
Total/Per capita: For GDP to have any significance in terms of standards of living, figures must be calculated on a per head/ per person (per capita) basis
GNI Gross national income: GNI is GDP plus net income paid into the country by other countries e.g interest and dividends.
GDP Gross domestic product: the total market value of all goods and services produced in the country in a given year.
PPP: Purchasing power parties: when values are expressed in accordance with the amount that the currency will buy in the local economy. ‘GDP at
PPP’ means that the exchange rate used is the one where the same basket of goods in the country, says the UK, could be bought in the USA at
this rate of currency exchange
Limitations of using GDP to compare living standards between Subsistence, barter and the hidden economy: if farmers consume their own output, if goods are traded without the price system… national
countries and over time income will not reflect the true standard of living
The informal economy: some output is not recorded because it is not bought or sold but it is still output
Currency values: difficulty in knowing whether to use the official value of currency (the exchange rate) or the purchasing power of that currency
Income distribution: income per head should be taken into account.
Size of the public sector: If much of the spending in the economy is by the government, it may or may not improve the welfare of the
population
Consumer and capital spending: spending on investment goods might mean standard of living increases in the future but at the expense of
living standards today
Quality issues and quality of life issues: rising real incomes may be associated with factors which might reduce living standard such as
differences in the number of hours worked…
These limitations mean that comparisons of living standards are likely to be inaccurate if they are based in solely on GDP, however real income growth per head is a good guide to actual growth if these other factors are
taken into account
National happiness GNH ( gross national happiness) had been designed in an attempt to define an indicator and concept that measures quality of life in more holistic
and psychological terms that only GDP.
However the index has only been officially used in Bhutan. In the uk, the ONS measures national well being and reports progress against a set of
headline indicators covering areas of our lives including health, natural environment, crime etc…
Easterlin paradox: the idea that happiness rises with average incomes, but only up to a point. Beyond this, the marginal gains on happiness fall,
perhaps because people care about relative as well as absolute incomes
, Example for answers with a focus on MACRO economics
Concepts Diagrams
Impact on any macro objectives • aggregate demand and supply
• inflation • Externalities
• Growth rates • PPFS
• Unemployment • J curve
• Balance of payments/ trade • Phillips curve
• The budget deficit / national debt • Laffer curve
• Environment • Lorenz curve
• Levels of inequality
Example for answers with a focus on MICRO economics
Concepts Diagrams
• impact on the consumer- price, quality, and consumer surplus • demand and supply
• Impact on firms - costs, revenue, profit and producer surplus • Costs and revenue
• Impact on the environment • Market structure
• Impact on the labour market • Externalities
• Impact on efficiency • demand and supply of labour
• Impact on the market and levels of competition
, Measures of economic performance
Keywords
[UMend
GDP is given as the value of production in the local currency. On its own it is almost meaningless:
• we need to know how many people there are GDP is the sum of all goods and services produced in a country in a year. It is also the sum of all incomes
and as
.
• … what the currency is worth in terms of its spending power in the local economy earned in a country in a year and the sum of al expenditure in a year
,
• … what the changes have been since the previous measure
• does not include earnings by its residents while outside the country
GDP: gross domestic product
• is the total market value of the goods and
Per capita: for GDP to have any significance in terms of standards of living, figures must be calculated on a per head (per capita) basis.
services produced in a country in a year GDP = all incomes + expenditure
If a country’s income increases by 10% but the population increases by 20%, people would on average be worse off per head
Actual economic growth: is an increase in real incomes or real GDP
Production: the value of goods and services Potential economic growth: is an increase in the productive capacity in a country,
produced in a given period of time • this could be caused by an increase in the labour supply, an increase in investment, or an increase in productivity
Productivity: this is usually measured as the Distinction between ‘real’ and ‘nominal’ measures:
output per worker or output per worker per hour If economic growth is measured using GDP, the value is meaningless unless the figures are given in real values rather than nominal values. Real values have been adjusted to remove the effects of inflation, whereas normal values are the current incomes that are adjusted for changes in
worker average prices
Real values: values that have been adjusted to Distinction between ‘value’ and ‘volume’ measures
remove the effects of inflation. The effects are
Another important distinction is to look at values rather than volumes.
removed using an index number that represents the
changes in prices and the results are called ‘constant
values’
Nominal values: values that are measured in
money terms. Nominal figures are the
unadjusted ‘current values’
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