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10 Cards in this Set
- Front
- Back
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Evaluate the difficulties of measuring economic growth and GDP |
Analysis In the output method it is important not to double count. Only measure value added.
It's important not to count and include benefits and transfer benefits in the income method. It may have already been counted at the pre tax stage.
The informal economy is difficult to estimate and calculate. Roughly half of India's economic activity is in the informal sector.
There are non marketed services such as DIY and household chores that are not included in GDP. Although two countries may have similar GDP per capita, the distribution of income in each country may be very different. |
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CPI vs RPI |
Cpi excludes mortgage payments. This means it's not affected by interest rates. It means the bank of England will be able to control this measure better. However, mortgages are still a major cost of living
CPI measures spending by foreign visitors and residents of institutional households.
The same goods and services are not being compared each year.
quality.
The inflation figure doesn't tell us the inflation rate for individuals. Using a fixed basket of goods mrsnd inflation tends to be overstated since goods and services improve in quality.The inflation figure doesn't tell us the inflation rate for individuals. RPI uses arithmetic mean whereas the CPI measure uses geometric mean. The RPI is therefore almost always higher than CPI.
RPI uses arithmetic mean whereas the CPI measure uses geometric mean. The RPI is therefore almost always higher than CPI. This means it is more likely to lead to a wage price spiral. |
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Government Budget |
The amount of money the government has to spend, financed by tax revenue |
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Current spending vs capital spending |
Spending on public services (e.g. public sector pay) which affects AD but not LRAS. Capital spending affects the productive capacity of the economy. The government should only cut current spending and not capital spending. Borrowing should not be done to finance capital spending |
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Sustainable investment rule |
Government debt can only go up to 60% of GDP.
To comply with the rule eurozone countries have to carry out austerity which can be self-defeating. |
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Golden Rule |
Only borrow to invest in capital goods. Do not borrow for capital spending. It prevents political short termism |
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Direct tax |
A tax on income or wealth |
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Indirect tax |
A tax on spending or goods and services |
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Fiscal dividends |
When the government sees an increase in tax revenue when the economy grows |
