Economics Slide C13 New (2).ppt PDF

Chapter 13: Measuring the performance of the economy  CHAPTER OUTLINE LEARNER OUTCOMES INTRODUCTION 13.1 MACROECONOMICS OBJECTIVES 13.2 MEASURING THE LEVEL OF ECONOMIC ACTIVITY: GROSS DOMESTIC PRODUCT 13.3 OTHER MEASURES OF P...

Chapter 13: Measuring the performance of the economy  CHAPTER OUTLINE LEARNER OUTCOMES INTRODUCTION 13.1 MACROECONOMICS OBJECTIVES 13.2 MEASURING THE LEVEL OF ECONOMIC ACTIVITY: GROSS DOMESTIC PRODUCT 13.3 OTHER MEASURES OF PRODUCTION, INCOME AND EXPENDITURE 13.4 MEASURING EMPLOYMENT AND UNEMPLOYMENT 13.5 MEASURING PRICES: THE CONSUMER PRICE INDEX 13.6 MEASURING THE LINKS WITH THE REST OF THE WORLD (BALANCE OF PAYMENTS) 13.7 MEASURING INEQUALITY: THE DISTRIBUTION OF INCOME IMPORTANT CONCEPTS Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LEARNER OUTCOMES Once you have studied this chapter you should be able to explain the five main macroeconomic objectives explain what the national accounts represent define the most important national accounting concepts show how the basic national accounting concepts are linked define the unemployment rate define and interpret the consumer price index (CPI) explain the balance of payments explain a Lorenz curve and the Gini coefficient Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  INTRODUCTION How is the economy performing? What are our economic prospects? Are things going to improve and, if so, when? This leads the economist to ask…. What criteria should be used? How can these criteria be quantified or measured? Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the five main macroeconomic objectives 13.1 MACROECONOMICS OBJECTIVES The five macroeconomic objectives Economi Full Price Balance Equitabl c growth employm stability of e ent payment distribut s ion of stability income Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  13.2 MEASURING THE LO: Explain what the national accounts represent LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked LEVEL OF ECONOMIC ACTIVITY: GROSS DOMESTIC PRODUCT The first step in measuring economic growth is to determine a country’s total production of goods and services in a specific period. Performed by the national accounting sections of Statistics South Africa (Stats SA) and the South Click Click African Reserve Bank (SARB). to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER title title style style The central 13: MEASURING THEconcept in the PERFORMANCE OF national accounts THE ECONOMY is the  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Defining GDP The gross1 domestic product is the total value2 of all final3 goods and services produced within the boundaries of a country4 in a particular period5 (usually one year). 1 Gross: No provision for depreciation, consumption of capital 2 Value: expressed in terms 3 goods and services: value added: to avoid double countin Final 4 Geographic aspect: within a country’s boundaries 5 Current Click production: during on the corresponding a particular numbers to examine theperiod elements of the definition Click Click again to hide Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are Defining GDP linked GDP = C + I + G + (X – Z) Investment Exports Imports Consumption Government spending Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Three methods of calculating GDP 1 Production method (value added) 2 Expenditure method (final goods and services) 3 Income method (income of the factors of production) Why do they yield the same answer? The three methods essentially measure the same thing, albeit at different points in the circular flow. Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Three methods of calculating GDP 1 Production method (value added) 2 Expenditure method (final goods and services) 3 Income method (income of the factors of production) Why do they yield the same answer? The three methods essentially measure the same thing, albeit at different points in the circular flow. Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Three methods of calculating GDP 1 Production method (value added) 2 Expenditure method (final goods and services) 3 Income method (income of the factors of production) Why do they yield the same answer? The three methods essentially measure the same thing, albeit at different points in the circular flow. Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Three methods of calculating GDP 1 Production method (value added) 2 Expenditure method (final goods and services) 3 Income method (income of the factors of production) Income method (income of the factors of Why do they yield the same answer? production) TheThe three methods income method essentially measure estimates GDP the same by adding up all thing, albeit at(rent, the incomes different points interest, in & wages the circular profits) received flow. by the FOP. Uses factor cost. Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked One of the major problems that national accountants have to deal with is the problem of double counting. Add the totals of each An example sale: A farmer produces 1 000 bags of wheat which he R10 sells to a miller at R10 per bag, yielding a total of 000 R10 000. + R12 The miller processes the wheat into flour, which he 500 then sells to a baker for R12 500. + R18 After baking bread with the flour, the baker sells it 000 You need to consider the ? to a shop for R18 000. value add for each + R21 The shop subsequently sells thetransaction bread to final 000 Click on the question mark for more consumers for R21 000. = R61 Click again to hide Click 500 What is the Click ECONOMICS value FOR SOUTHof AFRICAN these four transactions STUDENTS to to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked What is the value add? Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked Let us look at each method: Click on each letter to view the 1 Production method steps of the example. Click again to hide This method estimates GDP by adding up the contribution of each stage to GDP. A farmer produces 1 000 bags of Value A wheat which he sells to a miller at added R10 000 B R10 per bag, yielding a total of R10 R2 500 000. R5 500 C R3 000 D His value added Calculate is R10 the total value000 added by R21 000 adding up the value added per E stage RESET Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked Let us look at each method: Click on each letter to view the 1 Production method steps of the example. Click again to hide This method estimates GDP by adding up the contribution of each stage to GDP. Value A A Thefarmer milerproduces processes1 the 000 wheat bags of into added wheatwhich flour, whichhehethen sellssells to a to miller a baker at R10 000 B R10R12 for per500. bag, yielding a total of R10 R2 500 C 000. R5 500 Value added = R12 500 – R10 R3 000 D His value added is R10 000 000 R21 000 Calculate the total value added = R2 500 by E adding up the value added per RESET Click Click stage to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked Let us look at each method: Click on each letter to view the 1 Production method steps of the example. Click again to hide This method estimates GDP by adding up the contribution of each stage to GDP. Value A A The After farmer miller baking produces processes bread 1 with 000 thethe wheat bags flour, ofinto added wheat flour, the baker which whichsells he heit then sells to asells to shop a to miller for a baker R18at R10 000 B R10R12 for 000. per500. bag, yielding a total of R10 R2 500 C 000. R5 500 Value added = R18 R12 000 500 – R12 R10 R3 000 D His value added is R10 000 000 500 R21 000 Calculate the total value = R5 added R2 500 by E adding up the value added per RESET Click Click stage to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked Let us look at each method: Click on each letter to view the 1 Production method steps of the example. Click again to hide This method estimates GDP by adding up the contribution of each stage to GDP. Value A A The After farmer The miller baking shop produces processes bread 1 subsequentlywith 000 thethe wheat bags sellsflour, of theinto added wheat flour, the baker which whichsells he he it then sells to asells to shop a to bread to final consumers for R21miller for a baker R18at R10 000 B R10 for 000. 000.R12 per500. bag, yielding a total of R10 R2 500 C 000. R5 500 Value Value added added = = R18 R12 R21 000 500 000 –– R12 R10 R18 R3 000 D His 000 500 000value added is R10 000 R21 000 Calculate the total value = = R2 R5 R3added 500 000 by E adding up the value added per RESET Click Click stage to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked Let us look at each method: Click on each letter to view the 1 Production method steps of the example. Click again to hide This method estimates GDP by adding up the contribution of each stage to GDP. Value A A After Thefarmer miller shop baking produces subsequently processes bread 1 with 000 thesells the wheat bags flour, the of into added wheat flour, the breadbaker which to which final sells he he consumers it then sells to asells to shop a for to miller for aR21 baker R18 at R10 000 B R10R12 for 000. per500. bag, yielding a total of R10 R2 500 C 000. R5 500 Value added = R21 R12 000 R18 500 – R18 R10 R12 R3 000 D His value added is R10 000 500 000 R21 000 Calculate the total value = R3 added R2 000 R5 500 by E adding up the value added per RESET Click Click stage to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked Let us look at each method: Click on each letter to view the 1 Production method steps of the example. Click again to hide This method estimates GDP by adding up the contribution of each stage to GDP. The shop subsequently sells the Value A A After farmer miller baking produces processes bread 1 with 000 the the wheat bags flour, of into added bread wheat flour, the to baker final which whichsells heconsumers heit then sells a for to asells to shop to aR21 miller for baker R18at R10 000 B 000. R10R12 for per500. bag, yielding a total of R10 R2 500 C 000. R5 500 Value added = R21 R12 000 R18 500 – R18 R10 R12 R3 000 D 000 His 500 value added Calculate the totalis R10 value 000 added by R21 000 adding up the value = R3 R2 000 R5 added 500 per E RESET stage Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked 2 Expenditure method The expenditure method estimates GDP by adding up all the components of final demand. This is the sum of the spending by households, firms, the government and the ROW on final goods and services produced in the domestic (SA) economy. Or The expenditure approach measures GDP as the sum of consumption expenditure, investment, government purchases of goods and services, and net exports. GDP = C + I + G + (X – M) Click on the number to reveal. Click again to hide Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF LO: Explain what the national accounts represent ECONOMIC ACTIVITY: GDP LO: Define the most important national accounting concepts Three methods of calculating LO: Show how the basic national accounting concepts are GDP linked 3 Income method The income method estimates GDP by adding up all the incomes (rent, interest, wages and profits) received by the factors of production (land, capital, labour and entrepreneurship) during the various stages of the production process. Click on the number to reveal. Click again to hide Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  GDP does not include important non-market activities, such as home-making. Also, externalities (or spillovers) are not accounted for by GDP. In other words, GDP counts the final goods, like new cars, but it does not count everything that is good about an economy. And it does not count “the bads,” like greenhouse gas emissions. Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Measurement at market prices, basic prices and factor cost (or income) The three sets of prices that can be used to calculate GDP Market prices (used in expenditure 1 method) Basic prices (used in production 2 method) Factor cost (used in income 3 method) Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF ECONOMIC LO: Explain what the national accounts represent ACTIVITY: GDP LO: Define the most important national accounting concepts Measurement at market prices, basic LO: Show how the basic national accounting prices and factor cost (or income) concepts are linked GDP at factor cost (or GDP at market prices income) – taxes on products + other taxes on + subsidies on products production = GDP at basic prices – other subsidies on production = GDP at basic prices GDP at basic prices + other subsidies on GDP at basic prices production – other taxes on production + taxes on products = GDP at factor cost (or – subsidies on products income) = GDP at market prices Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent MEASURING THE LEVEL OF LO: Define the most important national accounting concepts ECONOMIC ACTIVITY: GDP LO: Show how the basic national accounting concepts are linked Measurement at current prices and at constant prices Measurement always first at current prices (nominal GDP) During inflation, adjustments for price increases required − nominal GDP converted to real GDP − use prices in a base year (constant prices) GDP at current prices = nominal GDP (reflects price changes) Click on the triangle to reveal Table 13-2 GDP at current prices and constant prices and nominal and real growth, Click 2000-2013. Click again to hide. Click toECONOMICS to edit edit FOR SOUTH AFRICAN STUDENTS Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LEVEL OF ECONOMIC LO: Explain what the national accounts represent ACTIVITY: LO: Define the most important national GDP accounting concepts LO: Show how the basic national accounting Measurement at current prices and at concepts are linked constant prices GDP at constant prices = real GDP (excludes price changes) In base year: real GDP = nominal GDP Or GDP at constant prices = GDP at current prices See Box 13-1: Nominal values, real values and purchasing power (Textbook page 239) Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain what the national accounts represent LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked 13.3 OTHER MEASURES OF PRODUCTION, INCOME AND EXPENDITURE Gross national income or gross national product GDP: geographical concept; reflects what happened on SA soil, irrespective of who created the product We also want to know what happened to the Click ECONOMICS economic FOR SOUTH position of South Africans Click to to edit edit Master Master AFRICAN STUDENTS CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF PRODUCTION, LO: Explain what the national accounts represent INCOME AND EXPENDITURE LO: Define the most important national accounting concepts Gross national income or gross LO: Show how the basic national accounting national product concepts are linked GNI (= GNP) = GDP all income earned in South Africa by foreign factors of production all income earned by South African factors of production in the rest of the world Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF LO: Explain what the national accounts represent PRODUCTION, INCOME AND LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked EXPENDITURE Expenditure on GDP Let’s recap: Three approaches to calculating the GDP The four major sectors of the economy The elements of total spending Click on the arrows for more information Click Click again to hide Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF LO: Explain what the national accounts represent PRODUCTION, INCOME AND LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked EXPENDITURE Expenditure on GDP Let’s recap: Three approaches to calculating the GDP The four major sectors of the economy Three The approaches elements to calculating the GDP of total spending Production approach Income approach Expenditure approach Click on the arrows for more information Click Click again to hide Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF LO: Explain what the national accounts represent PRODUCTION, INCOME AND LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked EXPENDITURE Expenditure on GDP Let’s recap: Three The four approaches major sectors to Threeofcalculating approaches the economythe to GDPcalculating Households the GDP The four major sectors Production Firms of the economy approach Government Income approach The Foreign Expenditure approach sectorof total spending elements Click on the arrows for more information Click Click again to hide Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF LO: Explain what the national accounts represent PRODUCTION, INCOME AND LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked EXPENDITURE Expenditure on GDP Let’s recap: The elements of total Three approachesThespending tofour major the calculating sectors GDP of the Three approaches to calculating economy the GDP The consumption sectors Households four majorexpenditure by households of the economy (C) Production Firms approach investment spending (or capital Income formation) by firms (I) approach government spending (G) Government Expenditure approach The elements of total spending expenditure on exportsForeign sector (X) minus expenditure on imports (Z) Click on the arrows for more information Click Click again to hide Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style PRODUCTION, INCOME AND LO: Explain what the national accounts represent EXPENDITURE LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked EXPENDITURE ON GDP CONTINUED GDP = expenditure on GDP =C+I+G+X–Z Table 13-3 Composition of expenditure on GDP in South Africa in 2013 Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF LO: Explain what the national accounts represent PRODUCTION, INCOME AND LO: Define the most important national accounting concepts EXPENDITURE LO: Show how the basic national accounting concepts are linked Expenditure on GDP Gross domestic expenditure (GDE) GDP = C + I + G + X – Z = GDP at market prices Gross domestic expenditure (GDE) = total value of all spending in South Africa = C+I+G Exports (X) excluded from GDE because expenditure occurs in the rest of the world Imports (Z) included in GDE (ie not subtracted) because expenditure occurs in SA Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style OTHER MEASURES OF LO: Explain what the national accounts represent PRODUCTION, INCOME AND LO: Define the most important national accounting concepts LO: Show how the basic national accounting concepts are linked EXPENDITURE Relationship between GDE and GDP GDE = C + I + G GDP = C + I + G + X – Z Thus: GDP = GDE + (X–Z) If GDP > GDE, then X > Z (ie (X–Z) is positive) If GDP < GDE, then Z > X (ie (X–Z) is negative) Important point The difference between domestic spending and domestic production is reflected in the balance of payments. Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Define the unemployment rate 13.4 MEASURING EMPLOYMENT AND UNEMPLOYMENT number of unemployed persons 100 Unemployment rate = ——————————————— x —— workforce (available workers) 1 Strict definition: only those who have looked for work but not found any Expanded definition: everyone who desires employment and does not have a job See Box 13-3 The informal sector (Textbook page 245) Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Define and interpret the consumer price index (CPI) 13.5 MEASURING PRICES: THE CONSUMER PRICE INDEX Purchasing Prices and power: The realpower purchasing value of money; what amount of goods or services can be bought with one unit of money. See Box 13-4 Index numbers (Textbook page 247) Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING PRICES: THE CONSUMER PRICE INDEX LO: Define and interpret the CPI The consumer price index CPI = index of prices of representative basket of consumer goods and services Elements of CPI:  basket  weights  base year  formula  price collection CPI serves as basis for measuring inflation Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING PRICES: THE CONSUMER PRICE INDEX LO: Define and interpret the CPI The consumer price index Table 13-5 The South African consumer price index (all urban areas), 2012 and 2013 (December 2012 = 100), seasonally adjusted Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING PRICES: THE CONSUMER PRICE INDEX LO: Define and interpret the CPI Constructing a price index By using the prices and the contents of the CPI basket it is possible to calculate the CPI.Cost Theofformula basket inis: current period * 100 Cost of basket in base period Furthermore, note that a major purpose of the CPI is to measure inflation. The inflation rate is the percentage change in the price level from one year to the next. The inflation formula is: (CPI of this year - CPI of the previous year) * 100 CPI of the previous year Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING PRICES: THE CONSUMER PRICE INDEX LO: Define and interpret the CPI Constructing a price index See Box 13-5 Constructing a price index (Textbook page 247) Lets work through the example in Box 13-5. Year Meat Bread Total cost of Qty Price Total Qty Price Total basket (kg) per kilo cost of (loaves per loaf cost of meat ) bread 2012 4 R35 R140 10 R10 R100 R240 2013 4 R45 R180 10 R12 R120 R300 Click on the numbers to reveal more information 1 Click again to hide Calculate the total price per basket for each year. 2 2012 = (4 X R35) + (10 X R10) = R140 + R100 = R240 2013 = (4 X R45) + (10 x R12) = R180 + R120 = R300 25% Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING PRICES: THE CONSUMER PRICE INDEX LO: Define and interpret the CPI Constructing a price index See Box 13-5 Constructing a price index (Textbook page 247) Lets work through the example in Box 13-5. Year Meat Bread Total cost of Qty Price Total Qty Price Total basket (kg) per kilo cost of (loaves per loaf cost of meat ) bread 2012 4 R35 R140 10 R10 R100 R240 2013 4 R45 R180 10 R12 R120 R300 Click on the numbers to reveal more information 1 Total cost of basket in 2013 (current period) Click again to hide X 100 Calculate the total price per basket for each year. Total cost of basket in 2012 (base period) 2 2012 = (4 X R35) + (10 X R10) = R140 + R100 = R240 300 2013 = (4 X R45) + (10 x R12)X=100 = 125,0 R180 + R120 = R300 25% 240 Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING PRICES: THE CONSUMER PRICE INDEX LO: Define and interpret the CPI Changes in purchasing power Purchasing power: The real value of money; what amount of goods or services can be bought with one unit of money. See Box 13-6 Changes in purchasing power (textbook page 249) Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the balance of payments 13.6 MEASURING THE LINKS WITH THE REST OF THE WORLD (BALANCE OF PAYMENTS) Summary of all transactions with the rest of the world Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LINKS WITH THE REST IF THE WORLD: LO: Explain the balance of payments BALANCE OF PAYMENTS Table 13-6 South Africa’s balance of payments, 2012 and 2013 Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LINKS WITH THE REST IF THE WORLD: LO: Explain the balance of payments BALANCE OF PAYMENTS Key eleme nts account Current Financial account Unrecorded transactions Gold and other foreign services Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LINKS WITH THE REST IF THE WORLD: LO: Explain the balance of payments BALANCE OF PAYMENTS Key Currenteleme account A record nts Current account of all the sales of goods and services to the rest of the world (exports), all the purchases of goods and services Financial accountfrom the rest of the world (imports) and all the primary income receipts and payments of a country. Unrecorded transactions -Exports (+) -Imports (–) Gold -Service and other receipts (+) foreign services -Service payments (–) -Income receipts (+) -Income payments (–) Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LINKS WITH THE REST IF THE WORLD: LO: Explain the balance of payments BALANCE OF PAYMENTS Key eleme nts account Current Financial account A record of all international transactions in assets Financial account and liabilities (i.e. all the purely financial flows in and out of a country, like purchases and sales of assetsUnrecorded such as bonds transactions and shares). -Direct investment -Portfolio Goldinvestment and other foreign -Other investment services Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LINKS WITH THE REST IF THE WORLD: LO: Explain the balance of payments BALANCE OF PAYMENTS Key eleme nts account Current Unrecorded Financialtransactions account All errors and omissions that occur in compiling the individual components Unrecorded of the balance of transactions payments. Unrecorded transactions ensure that the balance of payments balances. Gold and other foreign services Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style MEASURING THE LINKS WITH THE REST IF THE WORLD: LO: Explain the balance of payments BALANCE OF PAYMENTS Key eleme nts account Current Financial account Unrecorded transactions Gold and other foreign services Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the Lorenz curve and the Gini coefficient 13.7 MEASURING INEQUALITY: THE DISTRIBUTION OF INCOME Three of the measures used to calculate: 1) Lorenz curve 2) Gini coefficient 3) Quantile ratio Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the Lorenz curve and the Gini MEASURING INEQUALITY: THE DISTRIBUTION OF INCOME coefficient 1) Lorenz curve The Lorenz curve is a simple graphic device which illustrates the degree of inequality in the distribution of income (or any other variable). Constructing a Lorenz curve Click on the animation icon and work through the steps Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the Lorenz curve and the Gini MEASURING INEQUALITY: THE DISTRIBUTION OF INCOME coefficient 2) Gini coefficient definition Click on the triangle to work through the for the Gini coefficient. Click again to hide. Gini coefficient = area of inequality shown in the Lorenz curve Area of the right angled triangle formed by the axis and the line of equality RESET Gini index Gini index = Gini coefficient x 100 Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the Lorenz curve and the Gini MEASURING INEQUALITY: THE DISTRIBUTION OF INCOME coefficient 3) Quantile ratio income received by the highest per cent of the populat Quantile ratio = income received by the lowest per cent of the populatio Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  LO: Explain the Lorenz curve and the Gini MEASURING INEQUALITY: THE DISTRIBUTION OF INCOME coefficient The distribution of income in South Africa Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style  IMPORTANT CONCEPTS Factor cost Current prices Constant prices Nominal GDP Real GDP Gross national income (GNI) Net primary income payments Consumption of fixed capital Gross domestic expenditure (GDE) Purchasing power Specific index General (composite) index Consumer price index Balance of payments Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style IMPORTANT CONCEPTS CONTINUED Current account Financial account Trade balance Direct investment Portfolio investment Other investment Unrecorded transactions Gold and other foreign reserves Gross reserves Net reserves Lorenz curve Gini coefficient Gini index Click Click to ECONOMICS FOR SOUTH AFRICAN STUDENTS to edit edit Master Master CHAPTER 13: MEASURING THE PERFORMANCE OF THE ECONOMY title title style style