EDEXCEL: A-Level Economics A
- Paper 2
what is GDP an indicator of?
the standard of living in a country
what is the standard measure of economic growth?
rate of change of GDP
what is the difference between total and per capita GDP?
total is the overall GDP for a country and per capita is total GDP/population
when does GDP per capita grow?
when national output grows faster than the opoulation
what is the difference between real and nominal GDP?
real GDP takes into account inflation but nominal doesn't
what is the difference between volume and value?
volume is adjusted for inflation
value is monetary value at prices of the day = volume x price
what is gross national income?
GDP and net overseas interest and dividends
- starting to be used more due to remittances and aid
what is gross national product?
GDP by any citizens or property of a country anywher e in the world
how is growth used to compare over time (2)?
- put figures into context
- make judgements about welfare
what must you use when comparing countries' GDPs and why?
,real GDP per capita as population growth varies and inflation would effect it
what must you consider when making comparisons in GDP between countries?
must use per capita as total doesn't show living standards and could just increase due to
increase in prices
what is PPP and how is it measured?
this is an exchange rate which compares how much a typical basket of goods costs in one
country
why is PPP useful for comparing countries?
takes into account cost of living
what is an example of PPP index?
the big mac index
what are the limitations to using GDP to compare standard of living (6)?
- inaccuracy of data: inefficient collecting/calculation, black market, home produced services,
errors in inflation calculation, no transfer payments
- inequalities: increase in GDP may only benefit wealthy
- quality of g+s: improvement over time not reflected
- comparing currency: converted to US but ppl say u should use PPP instead
- spending: some doesn't improve living standard but does GDP e.g. defence
- other factors: like education
how is national happiness measured?
using the measuring national wellbeing report
what are the key questions in the national wellbeing report?
life satisfaction, anxiety, happiness and worthwhileness
how are real incomes and subjective happiness related?
they are positively related at low incomes but higher levels of income aren't correlated
what is the name for the term suggesting that those on higher incomes aren't happier when
their incomes increase?
easterlin paradox
what else does income and happiness depend on other than each other?
,the people around you - you are happier if you have a higher income than those around you -
linked to social status
what is the difference between inflation, deflation and disinflation?
inflation: general increase of prices in economy
deflation: fall of prices
disinflation: reduction in rate of inflation
what are the most well-known indices for calculating rate of inflation and which is used most?
consumer price index and retail price index, CPI is used
how is the CPI calculated ?
living costs and food survey is used
weighted basket of goods
measures average price change of goods
update annually
what are the limitations of CPI (4)?
- doesn't represent every good
- people spend differently
- doesn't include housing
- difficult to make comparisons with past as it is new
what is the difference between RPI and CPI?
RPI includes:
- housing: mortgage and interest payments
- CPI takes into account that people switch products when prices change
- RPI excludes top 4% of incomes and low income pensioners
what are the three types of inflation?
cost push
demand pull
growth in money supply
what is demand pull inflation?
increase in AD
what is cost push inflation?
, decrease in AS - businesses put up prices when costs rise to maintain profit margin
what are the effects of inflation on consumers (3)?
- if incomes don't rise they spend less and SoL falls
- those in debt have cheaper payments and savers lose out
- psychological effects of feeling less wealthy
what are the effects of inflation on firms (4)?
- if inflation high then less competitive abroad
- deflation means investment postponed, less demand = less profit = long term less invest
- difficult to predict so can't plan
- menu pricing costs
what are the effects of inflation on the government (1)?
if they don't change excise taxes then real revenue will fall
what are the effects of inflation on workers (2)?
- if they don't have a pay rise then living standards decrease
- deflation could cause job loss due to lack of demand
how can inflation be anticipated?
indexation - wages or taxes increased in line with inflation
what is an example of indexation?
workers negotiating with employers for wage rises in line with predicted CPI or RPI
what is an evaluation for indexation?
could increase inflation because wage increases will reflect past increases - if inflation decreases
wages are still rising
what are the two measures of unemployment?
claimant count and UK labour force survey (ILO)
what is the difference between labour force survey and claimant count?
claimant is the number of people receiving benefits and survey is a sample of people used
how can results of claimant count and LFS differ (3)?
- Paper 2
what is GDP an indicator of?
the standard of living in a country
what is the standard measure of economic growth?
rate of change of GDP
what is the difference between total and per capita GDP?
total is the overall GDP for a country and per capita is total GDP/population
when does GDP per capita grow?
when national output grows faster than the opoulation
what is the difference between real and nominal GDP?
real GDP takes into account inflation but nominal doesn't
what is the difference between volume and value?
volume is adjusted for inflation
value is monetary value at prices of the day = volume x price
what is gross national income?
GDP and net overseas interest and dividends
- starting to be used more due to remittances and aid
what is gross national product?
GDP by any citizens or property of a country anywher e in the world
how is growth used to compare over time (2)?
- put figures into context
- make judgements about welfare
what must you use when comparing countries' GDPs and why?
,real GDP per capita as population growth varies and inflation would effect it
what must you consider when making comparisons in GDP between countries?
must use per capita as total doesn't show living standards and could just increase due to
increase in prices
what is PPP and how is it measured?
this is an exchange rate which compares how much a typical basket of goods costs in one
country
why is PPP useful for comparing countries?
takes into account cost of living
what is an example of PPP index?
the big mac index
what are the limitations to using GDP to compare standard of living (6)?
- inaccuracy of data: inefficient collecting/calculation, black market, home produced services,
errors in inflation calculation, no transfer payments
- inequalities: increase in GDP may only benefit wealthy
- quality of g+s: improvement over time not reflected
- comparing currency: converted to US but ppl say u should use PPP instead
- spending: some doesn't improve living standard but does GDP e.g. defence
- other factors: like education
how is national happiness measured?
using the measuring national wellbeing report
what are the key questions in the national wellbeing report?
life satisfaction, anxiety, happiness and worthwhileness
how are real incomes and subjective happiness related?
they are positively related at low incomes but higher levels of income aren't correlated
what is the name for the term suggesting that those on higher incomes aren't happier when
their incomes increase?
easterlin paradox
what else does income and happiness depend on other than each other?
,the people around you - you are happier if you have a higher income than those around you -
linked to social status
what is the difference between inflation, deflation and disinflation?
inflation: general increase of prices in economy
deflation: fall of prices
disinflation: reduction in rate of inflation
what are the most well-known indices for calculating rate of inflation and which is used most?
consumer price index and retail price index, CPI is used
how is the CPI calculated ?
living costs and food survey is used
weighted basket of goods
measures average price change of goods
update annually
what are the limitations of CPI (4)?
- doesn't represent every good
- people spend differently
- doesn't include housing
- difficult to make comparisons with past as it is new
what is the difference between RPI and CPI?
RPI includes:
- housing: mortgage and interest payments
- CPI takes into account that people switch products when prices change
- RPI excludes top 4% of incomes and low income pensioners
what are the three types of inflation?
cost push
demand pull
growth in money supply
what is demand pull inflation?
increase in AD
what is cost push inflation?
, decrease in AS - businesses put up prices when costs rise to maintain profit margin
what are the effects of inflation on consumers (3)?
- if incomes don't rise they spend less and SoL falls
- those in debt have cheaper payments and savers lose out
- psychological effects of feeling less wealthy
what are the effects of inflation on firms (4)?
- if inflation high then less competitive abroad
- deflation means investment postponed, less demand = less profit = long term less invest
- difficult to predict so can't plan
- menu pricing costs
what are the effects of inflation on the government (1)?
if they don't change excise taxes then real revenue will fall
what are the effects of inflation on workers (2)?
- if they don't have a pay rise then living standards decrease
- deflation could cause job loss due to lack of demand
how can inflation be anticipated?
indexation - wages or taxes increased in line with inflation
what is an example of indexation?
workers negotiating with employers for wage rises in line with predicted CPI or RPI
what is an evaluation for indexation?
could increase inflation because wage increases will reflect past increases - if inflation decreases
wages are still rising
what are the two measures of unemployment?
claimant count and UK labour force survey (ILO)
what is the difference between labour force survey and claimant count?
claimant is the number of people receiving benefits and survey is a sample of people used
how can results of claimant count and LFS differ (3)?
