• Macroeconomics 232 covers key terms and national accounts

National Accounts

• National accounts are a system used to describe macroeconomic indicators, like the total, composition, and distribution of aggregate output
• This was developed after World War 2
• National Accounts have been in South Africa since 1960
• The South African Reserve Bank (SARB) publishes a Quarterly Bulletin

GDP: Production and Income

• Gross Domestic Product (GDP) measures the aggregate output in national accounts
• GDP represents the market value of goods and services produced by labor and property in South Africa
• GDP can be calculated in three ways: the value of final goods and services produced in an economy during a period (usually one year); the sum of value added in the economy during a period (usually one year); or the sum of incomes in the economy during a period (usually one year)

Nominal vs. Real GDP

• South Africa's GDP in 2013 was R3.1 trillion
• South Africa's GDP in 1960 was R5.268 million
• The increase in GDP is due to higher prices, not higher quantities produced
• Nominal GDP is the sum of final goods multiplied by their current prices
• Real GDP is the sum of final goods multiplied by their constant prices, at the base year price
• The base year in which prices are set in South Africa is 2012

GDP: Levels vs. Growth

• Nominal GDP per capita is nominal GDP divided by total population
• Real GDP per capita is real GDP divided by total population
• GDP growth rate equation: (GDP in current year – GDP in previous year) / GDP in previous year all multiplied by 100

Business Cycles

• Business cycles include periods of expansion followed by periods of contraction

The Unemployment Rate

• Employment is the number of people who have jobs
• Unemployment is the number of people without jobs
• The unemployment rate is the number of unemployed divided by the labor force
• Discouraged workers are unemployed people who have stopped looking for a job
• Narrow unemployment is the standard measure of unemployment
• Broad unemployment includes standard unemployment plus discouraged workers
• The labor force is the sum of employment and narrow unemployment
• Economists care about unemployment because it affects the welfare of unemployed individuals, strains public resources, and indicates inefficient use of resources

The Inflation Rate

• Inflation is a rising general level of prices
• Deflation is a falling general level of prices
• The inflation rate is how quickly the price level rises

The GDP Deflator

• Nominal GDP increases faster than real GDP
• GDP deflator is defined as Pₜ, where t is the year
• The rate of change π = (Pₜ - Pₜ₋₁) / Pₜ₋₁

CPI (Consumer Price Index)

• Average price of consumption or the cost of living varies from general price increases
• CPI is the cost of specific items over time
• CPI is compared to a specific time with the base year equalling 100
• 2012 is the base year in South Africa
• Economists care about inflation because it affects income distribution and can lead to economic uncertainty

Short, Medium and Long Run

• Short run: a year with year-to-year movements and changes in demand
• Medium run: a couple of years/a decade regarding the labor market, capital stock, and technology level
• Long run: more than one decade regarding education, savings and government policy